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Chapter 19: Q1 (page 460)

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

Short Answer

Expert verified

The statement - comparative advantage must be due to natural elements, is False

Step by step solution

01

Comparative Advantage Meaning

Comparative Advantage means a country is able to produce a good with lower opportunity cost, ie lesser amount of other good sacrificed.

For eg : If country A can produce good 1 by trading off 2 units of good 2, & country B can produce it by trading 3 units of other good. Then, country A has comparative advantage in good 1.

02

Causes of Comparative advantage Concept

Comparative advantage can be due to natural advantages : like climate & natural reserves.

However, it can be due to many other factors

  • Human Resource & skills led efficiency
  • Technical know how led efficiency

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Most popular questions from this chapter

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?

Does intra-industry trade contradict the theory of

comparative advantage?

If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka鈥檚 GDP.

What are the two main sources of economic gains

from intra-industry trade?

What is intra-industry trade?
See all solutions

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