International Economics
16th Edition
ISBN: 9781305887633
Author: Robert Carbaugh
Publisher: Cengage Learning
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Chapter 2, Problem 5SQ
To determine
Determine how the comparative-cost concept relate to a nation’s production possibilities schedule.
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Who are the winners and losers of the free trade between two countries? Can free trade between the two countries make consumers of both countries better off?
In answering this question, consider discussing:
How are you and your household connected to the global economy? Which imported goods and services do you buy?
Are your consumption patterns based on comparative advantage?
How do US trade patterns, based on comparative advantage, contribute to income inequality in the US, according to the Heckscher-Ohlin model?
How has trade affected international income inequality?
What were some recent tariffs? Who really pays the cost of tariffs?
“In what way does an understanding of the shifts in the PPC help businesses/countries make production decisions?”
Rubric: ensure the importance of absolute and comparative advantage is made clear.
(Comparative Advantage) Suppose that each US worker can produce 8 units of food or 2 units of clothing daily. In Fredonia, which has the same number of workers, each worker can produce 7 units of food or 1 unit of clothing daily. Why does the US have an absolute advantage in both goods? Which country enjoys a comparative advantage in food? Why?
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- a)Identify an example of absolute advantage relative to the United States from your data tables. Be sure to identify which country has absolute advantage (U.S. or other), the product, and data to support your claim. Tip: When considering absolute and comparative advantage, worker hours to produce one unit is a reflection of productivity. b)Identify an example of comparative advantage relative to the United States from your data tables. Be sure to identify which country has comparative advantage (U.S. or other), the product, and data to support your claim. c) Explain why most trade occurs because of comparative advantage. Be sure to provide examples from the data tables or from the lesson to support your answer.arrow_forwardExplain, with a two-country, two-good model, why the Heckscher-Ohlin model predicts only partial specialisation in the production of two goods, while Ricardo's comparative advantage model predicts full specialisation when opening up to international trade. You can opt to present your explanation with the aid of diagrams.arrow_forwardImagine two nations with similar landmasses andlevels of wealth that do not specialize in the sameindustries. What characteristics might drive differences in their comparative advantages?arrow_forward
- Consider the production productivity matrix of two goods from the US and India: United States of America India Labor force 200 800 Labor per unit corn 8 50 Labor per unit automobile 10 40 6. In India, how many units of corn is it willing to give-up to produce a unit of automobile? Group of answer choices 0.8 1.25 Both 0.8 and 1.25 Not enough data 7. The US, to achieve comparative advantage in producing a unit of corn, need to give-up how many unit(s) of automobile? Group of answer choices 0.8 1.25 Both 0.8 and 1.25 Not enough dataarrow_forwardConsider the following data on two countries, A and B. A B Unskilled labor 72 million 540 million Skilled labor 60 million 300 million a. which country is skilled-labor abundant and why? b. which country is unskilled-labor abundant and why? c. now assume that product T is unskilled-labor intensive relative to product S, under free-trade equilibrium, which country will have a comparative advantage in the production of T?arrow_forwardConsidering that resources are scarce, is it a good decision to allow China to explore and use up the resources in the West Philippine Sea in exchange of financial aid? Is it a good “trade off”? (Trade off is an economic principle which means “giving up one thing to get another thing”.arrow_forward
- In Country T, it takes 10 resources to produce 1 ton of cocoa and 13.5 resources to produce 1 ton of rice. In Country Y, it takes 40 resources to produce 1 ton of cocoa and 20 resources to produce 1 ton of rice. Country T has a comparative advantage over Country Y in cocoa. This follows the theory of comparative advantage, and we can say that engaging in free trade benefits all countries that participate in it; however, this conclusion stems from which of these inaccurate assumptions? Multiple Choice We have assumed constant returns to scale. We have assumed the prices of resources and exchange rates in the two countries are dynamic. We have assumed there are barriers to the movement of resources from the production of one good to another within the same country. We have assumed that agrarian nations do not specialize in producing particular products. We have assumed diminishing returns to specialization.arrow_forwardAmerican and Japanese workers can each produce 4 cars a year. An American worker can produce 10 tons of grain a year, whereas a Japanese worker can produce 5 tons of grain a year. Each country has 100 million workers Who has a comparative advantage in the production of cars? What is the opportunity cost for cars?arrow_forwardDraw the production possibility curve for each country using the data provided in the table. b. Which country has an absolute advantage in what product? Which country has a comparative advantage in what product? Show your work! c. Without trade, what is the price of food in terms of computers for both countries? Showyour work! d. What is the range of prices (i.e., the CPC) at which trade can occur? Also, show (a) the possible CPC for each country and (b) the possible production and consumption possibility lines for both countries after trade. Show your work!arrow_forward
- Productivity Table Soup per unit of labor Swords per unit of labor Wesley 30 25 Fezzik 10 30 Which of the following is true? Fezzik has the absolute advantage in swords and the comparative advantage in swords. Fezzik and Wesley both have the comparative advantage in soup. Wesley has the absolute advantage in soup and the comparative advantage in soup. Wesley has the comparative advantage in swords and the absolute advantage in souparrow_forwardGermany and Sweden produce cars and kitchen appliances. Germany can produce 5 million cars per year if it produces only cars and no kitchen appliances, or 10 million kitchen appliances per year if it produces only kitchen appliances and no cars. Sweden can produce 1 million cars per year if it produces only cars and no kitchen appliances, or 3 million kitchen appliances per year if it produces only kitchen appliances and no cars. What is Germany’s opportunity cost of manufacturing 1 million cars per year? (Hint: Your answer should be in terms of millions of kitchen appliances per year.) What is Sweden’s opportunity cost of manufacturing 1 million cars per year? (Hint: Your answer should be in terms of millions of kitchen appliances per year.) What is Germany’s opportunity cost of manufacturing 1 million kitchen appliances per year? (Hint: Your answer should be in terms of millions of cars per year.) What is Sweden’s opportunity cost of manufacturing 1 million kitchen appliances per…arrow_forwardLabor productivity coefficients for the US and Brazil are given by the following table: Country Wheat per week Clothing per week Labor(number of workers) United States 2 8 100 Brazil 1 2 120 Solve for: Who has the absolute advantage in wheat? What is the opportunity cost of 1 unit of wheat in the US? in Brazil? What is the opportunity cost of 1 unit of clothing in the US? in Brazil? Who has the comparative advantage in Wheat? In Clothing? Draw the production possibility frontier for the US. (Put Wheat on the Y-axis and Clothing on the X-axis) For Brazil (Put Wheat on the Y-axis and Clothing on the X-axis) Suppose each country decides to split its labor force equally on the production of each good. Locate the point on the PPF curve for each country that represents this allocation of labor. What’s their production and consumption combination # at this point?arrow_forward
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