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Chapter 19: Q 17. (page 462)

Are differences in geography behind the

differences in absolute advantages?

Short Answer

Expert verified

It depends on various factors whether differences in geography behind the differences in absolute advantages.

Step by step solution

01

Step 1. Definition

The ability of individual, firm, region, or country to produce a greater quantity of a good or service using the same quantity of inputs or to produce the same quantity of a good or service using a lesser quantity of inputs can be referred to as absolute advantage.

02

Step 2. Explanation

Yes, sometimes geography plays a role in causing differences in absolute advantages but it is not the only factor.

Take an example, as the amount of effort required to mine coal depends to a great extent on where coal deposits are located in abundance, which depends on geography. But smartphones stores are located everywhere, this is because the productivity of smartphones depends on things other than geography.

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Most popular questions from this chapter

Is it possible to have a comparative advantage in

the production of a good but not to have an absolute advantage? Explain.

France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.

a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.

b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes.

c. Identify which country has the comparative advantage.

d. How much would France have to give up in terms of tomatoes to gain from trade? How much would it have to give up in terms of green beans?

Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?

What are the two main sources of economic gains

from intra-industry trade?

Why might intra-industry trade seem surprising

from the point of view of comparative advantage?
See all solutions

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