MACROECONOMICS (LL)
21st Edition
ISBN: 9781260186949
Author: McConnell
Publisher: MCG
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Chapter 20, Problem 3P
To determine
The comparative advantage of countries.
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In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles? LO26.2 a. Country A. b. Country B
Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata:
Canswicki: 1 can baby formula ≡ 5 cans tuna fish
Tunata: 1 can baby formula ≡ 7 cans tuna fish
a. In what product should each nation specialize?
Canswicki should produce _____- , and Tunata should produce _____
b. Would the following terms of trade be acceptable to both nations?
i. 1 can baby formula ≡ 4 cans tuna fish: yes or no
ii. 1 can baby formula ≡ 8 cans tuna fish: yes or no
iii. 1 can baby formula ≡ 5.5 cans tuna fish: yes or no
Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?
Chapter 20 Solutions
MACROECONOMICS (LL)
Ch. 20.2 - Prob. 1QQCh. 20.2 - Prob. 2QQCh. 20.2 - Prob. 3QQCh. 20.2 - Prob. 4QQCh. 20 - Prob. 1DQCh. 20 - Prob. 2DQCh. 20 - Prob. 3DQCh. 20 - Prob. 4DQCh. 20 - Prob. 5DQCh. 20 - Prob. 6DQ
Ch. 20 - Prob. 7DQCh. 20 - Prob. 8DQCh. 20 - Prob. 9DQCh. 20 - Prob. 10DQCh. 20 - Prob. 11DQCh. 20 - Prob. 12DQCh. 20 - Prob. 13DQCh. 20 - Prob. 14DQCh. 20 - Prob. 1RQCh. 20 - Prob. 2RQCh. 20 - Prob. 3RQCh. 20 - Prob. 4RQCh. 20 - Prob. 5RQCh. 20 - Prob. 6RQCh. 20 - Prob. 7RQCh. 20 - Prob. 8RQCh. 20 - Prob. 9RQCh. 20 - Prob. 10RQCh. 20 - Prob. 11RQCh. 20 - Prob. 12RQCh. 20 - Prob. 13RQCh. 20 - Prob. 1PCh. 20 - Prob. 2PCh. 20 - Prob. 3PCh. 20 - Prob. 4P
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- 1. Suppose there are two countries Peru and Japan that produce Food and Fuel. Peru can produce 7,523 units of Food or 17,853 units of Fuel using a labour force of 8000. Japan can produce 5,733 units of Food or 24,156 units of Fuel using a labour force of 5000. a) Which country has the comparative advantage in food? In fuel? Explain. b) Which good(s) should each country specialize in? c) Discuss the benefits of specialization for each country.arrow_forwardsugar, You have been asked to analyze the opportunity costs and comparative advantages to recommend an efficient trading relationship. Consider the production data provided. Prepare a brief report that: 3. Calculate and compare the opportunity costs of producing 1 unit of corn and 1 unit of sugar in each country. Which country has the lower opportunity cost for each good? 2. Determine which good each country has a comparative advantage in producing sugar and which one has a comparative advantage in producing corn. Explain your analysis. 3. Recommend a trading relationship that allows the countries to specialize based on comparative advantage. How would trade Improve economic efficiency? 4. Think about your own interests, skills, and opportunities. In what areas do you potentially have a comparative advantage over your peers or co-workers? Are there goods or services you could provide to others more efficiently? How could you maximize your advantages to achieve positive gains from trade…arrow_forwardSuppose that Poland and Wales both produce ale and glass. Poland's opportunity cost of producing a pane of glass is 4 kegs of ale while Wales's opportunity cost of producing a pane of glass is 12 kegs of ale. By comparing the opportunity cost of producing glass in the two countries, you can tell thatWales has a comparative advantage in the production of glass andPoland has a comparative advantage in the production of ale. Suppose that Poland and Wales consider trading glass and ale with each other. Poland can gain from specialization and trade as long as it receives more than of ale for each pane of glass it exports to Wales. Similarly, Wales can gain from trade as long as it receives more than of glass for each keg of ale it exports to Poland. Based on your answer to the last question, which of the following prices of trade (that is, price of glass in terms of ale) would allow both Wales and Poland to gain from trade? Check all that apply. 8 kegs of…arrow_forward
- Consider a two country, two goods, one factor (labor) model of international trade. Suppose home country require 1 units of labor to produce a unit of cloth and 1 unit of labor to produce a unit of wine (regardless of output levels). Foreign country requires 2 unit of labor to produce 1 unit of cloth and 1.5 units of labor to produce 1 unit of wine (regardless of output levels). (a) Which country has the comparative advantage in producing wine? Justify your answer. (b) Which country has the absolute advantage in producing wine? (c) Which country will have higher autarky price of wine in terms of cloth? (d) Suppose after trade, the international relative price settles at a level strictly between the autarky relative prices of the two countries. At the trade equilibrium, show which country will produce wine and which country will produce cloth.arrow_forwardAnswer th following: If Nation 2 is to enter trade. In what good will it specialize? Why? If Nation 2 is to specialize in the good of its comparative advantage, how much good X and good Y will Nation 2 produce? Suppose after specialization, Nation 2 exports 100 units of the good of its comparative advantage [your answer in 1], how much of X and Y will it consumer after trade Will Nation 2 enjoy welfare gains from trade? Provide evidencearrow_forwardSuppose that the productivity per worker in the milk and cranberry juice industries of Southland and Northland are as follows: Output in Thousands of Litres Milk Cranberry Juice Northland 6 Or 3 Sounthland 2 Or 1 a) Which country has the absolute advantage in producing milk? b) Which country has the absolute advantage in producing cranberry juice? c) Which country has the comparative advantage in producing milk? d) Which country has the comparative advantage in producing cranberry juice? e) According to the theory of comparative advantage, will there be trade? If yes, what is the direction of trade?arrow_forward
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