Suppose that the United States and Saudi Arabia can each produce two products, oil and personal computers. The labor requirements per unit of output are provided in the table below: Labor Requirements Per Unit of Output Oil Personal Computers United States 10 30 Saudi Arabia 8 4 Calculate the labor and opportunity costs for each good, and then compute each country's absolute and comparative advantage. Use the results to determine what good each country should export and explain your reasoning. 1. What does absolute advantage mean? How do you calculate absolute advantage? 2. Which country has an absolute advantage in producing oil? Explain using the data from the table. 3. Which country has an absolute advantage in producing personal computers? Explain using the data from the table. 4. What does comparative advantage mean? How do you calculate comparative advantage? 5. In what output(s) does the U.S. have a comparative advantage? Explain using the data from the table. 6. In what output(s) does Saudi Arabia have a comparative advantage? Explain using the data from the table. 7. What product should each country export? Why?

Suppose that the United States and Saudi Arabia can each produce two products, oil and personal computers. The labor requirements per unit of output are provided in the table below: Labor Requirements Per Unit of Output Oil Personal Computers United States 10 30 Saudi Arabia 8 4 Calculate the labor and opportunity costs for each good, and then compute each country's absolute and comparative advantage. Use the results to determine what good each country should export and explain your reasoning. 1. What does absolute advantage mean? How do you calculate absolute advantage? 2. Which country has an absolute advantage in producing oil? Explain using the data from the table. 3. Which country has an absolute advantage in producing personal computers? Explain using the data from the table. 4. What does comparative advantage mean? How do you calculate comparative advantage? 5. In what output(s) does the U.S. have a comparative advantage? Explain using the data from the table. 6. In what output(s) does Saudi Arabia have a comparative advantage? Explain using the data from the table. 7. What product should each country export? Why?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter33: International Trade

Section: Chapter Questions

Problem 4SCQ: In Germany it takes three workers to make one television and four workers to make one video camera....

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In Germany it takes three workers to make one television and four workers to make one video camera. In Poland It takes six workers to make one television and 12 workers to make one video camera. Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell? Calculate the opportunity cost of producing one additional television set in Germany and In Poland. (Your calculation may involve fractions, which Is tine.) Which country has a comparative advantage in the production of televisions? Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras? In this example, is absolute advantage the same as comparative advantage, or not? In what product should Germany specialize? In what product should Poland specialize?
True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.
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. Who has the absolute advantage in the production of rubber or radios? How can you tell? 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? 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? In this example, does each country have an absolute advantage and a comparative advantage in the same good? In what product should Japan specialize? In what product should Malaysia specialize?
Is absolute advantage or comparative advantagemore important for trade? Explain your reasoningusing the example in your answer to question 3.
In South Africa, entrepreneur Hloki Raphuting, founder of PalmH, manufactures high-qualitybags and shoes all made from the finest leather. Draw a PPC illustrating the productioncombinations of leather bags and leather shoes. On the same diagram illustrate and explainwhat would happen to the PPC if PalmH acquired additional resources for producing both shoesand bags.
Define the term comparative advantage in the context of economics. Please explain in a well manner.
Two countries, Korea and Vietnam, are engaging in international trade.They produce two goods: automobiles and cloth. We observe a relativeabundance of cheap labor in Vietnam and a relative abundance of capitalin South Korea. a. Assume that automobiles are capital-intensive and cloth are cheaplabor-intensive. Using the Hecksher-Ohlin theory, explain what willhappen in trade between these two countries, in terms of export andimport. c. Draw a graph that shows the above situation in South Korean economy with a P P F and two relative prices (one before trade and theother after trade). The quantity of automobiles (QAuto) is on thehorizontal axis and the quantity of cloth (QCloth) is on the verticalaxis.
The following table shows the production of cows’ milk and potatoes per unit of input in the hypothetical countries of St. Claire and St. Paul. Use the following table to answer the questions. St. Claire St. Paul Cow’s Milk 100 liters 50 liters Potatoes 150 liters 60 kilos a) What is the opportunity cost of producing one liter of cows’ milk in St. Paul? b) Which country has the comparative advantage in the production of cows’ milk? c) What is the opportunity cost of producing one kilo of potatoes in St. Claire?