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Chapter 19: Q 9. (page 461)
Under what conditions does comparative advantage
lead to gains from trade?
The gains from trade are based only on comparative advantage.
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What is splitting up the value chain?
In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?
c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?
e. In what product should Japan specialize? In what product should Malaysia specialize?
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?
In Exercise 19.31, is there an 鈥渁sk鈥� where Venezuelans may say 鈥渘o thank you鈥� to trading with Canada?
Why does the United States not have an absolute
advantage in coffee?
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