The gains from specialization and trade are discussed in terms of production gains and consumption gains. Assume conditions of complete specialization. The following two tables show the production of autos and wheat for two countries, Posmaorus and Uskuburg, before and after they specialize in one of the goods, as well as consumption before and after the countries start trading. Complete the following table by calculating production gains or losses from specialization and filling in the last two columns. Before Specialization After Specialization Autos Wheat Autos Wheat Country (Thousands) (Thousand tons) (Thousands) (Thousand tons) Posmaorus 60 130 Uskuburg World 60 120 60 50 Before Trade 120 100 150 Autos Wheat Country (Thousands) (Thousand tons) Posmaorus 60 Uskuburg World Complete the following table by calculating consumption gains or losses from trade and filling in the last two columns 0 130 50 100 150 65 10 After Trade 130 200 200 Net Gain or Loss Autos Wheat (Thousands) (Thousand tons) Autos Wheat Autos Wheat (Thousands) (Thousand tons) (Thousands) (Thousand tons) 65 100 100 200 Net Gain or Loss

The gains from specialization and trade are discussed in terms of production gains and consumption gains. Assume conditions of complete specialization. The following two tables show the production of autos and wheat for two countries, Posmaorus and Uskuburg, before and after they specialize in one of the goods, as well as consumption before and after the countries start trading. Complete the following table by calculating production gains or losses from specialization and filling in the last two columns. Before Specialization After Specialization Autos Wheat Autos Wheat Country (Thousands) (Thousand tons) (Thousands) (Thousand tons) Posmaorus 60 130 Uskuburg World 60 120 60 50 Before Trade 120 100 150 Autos Wheat Country (Thousands) (Thousand tons) Posmaorus 60 Uskuburg World Complete the following table by calculating consumption gains or losses from trade and filling in the last two columns 0 130 50 100 150 65 10 After Trade 130 200 200 Net Gain or Loss Autos Wheat (Thousands) (Thousand tons) Autos Wheat Autos Wheat (Thousands) (Thousand tons) (Thousands) (Thousand tons) 65 100 100 200 Net Gain or Loss

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter33: International Trade

Section: Chapter Questions

Problem 1WNG

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The following table shows the output of rice and cotton for Country A and Country B. Each country divides its resources equally between the production of rice and cotton. Based upon the law of comparative advantage, which of the following statement is correct? Units of the output of rice per year Units of the output of cotton per year 500 500 400 200 Country A Country B O a. Country B has a lower opportunity cost in producing rice. O b. Country A should produce both goods as the opportunity cost is the same. Country A has a higher opportunity cost in producing cotton. c. O d. Country B should produce both goods as they have an absolute advantage.
The concept of comparative advantage is used by both countries and companies. Use a two goods example and two countries or companies to explain the comparative advantage theory. Use this theory to justify if its worthwhile for countries or companies specialize.
Two planets, Endor and Kamino, both produce two goods, blasters and radio devices. The below graphs show the PPF curves of each planet before specialization. Initially, each planet produces 50,000 radio devices and 5,000 blasters. In total, 100,000 radios and 10,000 blasters are produced. Which planet has a comparative advantage in producing radios and which planet has a comparative advantage in producing blasters? If each planet was to fully specialize in producing one good, how many radios in total would be produced and how many blasters in total would be produced? Suppose that the two planets trade 5,000 blasters for 90,000 radios. Graph and label the new points on each planet’s PPF using the graphs above. What is the outcome of specialization and trade for each planet?
Q2. The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.: Textiles Autos United Kingdom 16 4 United States 12 6 Which country has an absolute advantage in textiles and which country has an absolute advantage in autos? What is the autarky price ratio of autos relative to textiles in each country? Which country has a comparative advantage in textiles and which country has a comparative advantage in autos? Which product should each country export? Suppose the United States has 150 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States. Suppose the international price is set at 1 auto:3 textile and the U.S. decides to completely specialize in producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade…
Country A Country B 200 corn 600 150 375 100 50 50 75100 150 200 cars 25 50 75 100 cars a) What is the opportunity cost of making cars in each country? Make clear how you find this and what it means. b) If the countries were to specialize and trade, which country should specialize in making cars? Why? c) If the countries specialize completely according to comparative advantage (i.e.each produces only what they have the comparative advantage in) what would be the total production of cars and corn? How does this compare to the total production at their original pre-trade production points? d) Suppose the country that specializes in making only cars trades with the country that makes no cars. The car-maker sends the other country as many cars as they were consuming before trade. How much corn could the corn-making country trade for these cars and have both countries be better off than they were before trade?
Explain the concept of comparative advantage and how it is related to the benefit that nations derive when they engage in trade?
Which of the following statements is correct? Two countries cannot gain from specialization and trade if they have identical opportunity costs in the production of some goods If two countries are gaining from specialization and trade, the countries must be specializing in the good they have an absolute advantage in If a certain trade is good for one country, it must be bad for the other country Two countries cannot gain from specialization and trade if one country does not have an absolute advantage in either good A Click Submit to complete this assessment.
The countries of Nickeltown and Lykesville each produce two goods: Ovens and Dishwashers. The table below lists the production for each good, for each country per year when each country uses half of their resources to produce each good. Country Production of Ovens Production of Dishwashers Nickeltown 105 Lykesville 147 What is the opportunity cost of producing 1 Ovens in Nickeltown Dishwashers 70 42 What is the opportunity cost of producing 1 Ovens in Lykesville Dishwashers ONickeltown OLykesville ONot enough information Which country has a comparative advantage in producing Ovens?
Glacier has a comparative advantage in the production of a comparative advantage in the production of Congaree specialize in the production of the goods in which each After specialization, the two countries can produce a total of and million pounds of basil. Suppose that Glacier and Congaree agree to trade. Each country focuses its resources on producing only the good in which it has a comparative advantage. The countries decide to exchange 16 million pounds of corn for 16 million pounds of basil. This ratio of goods is known as the price of trade between Glacier and Congaree. The following graph shows the same PPF for Glacier as before, as well as its initial consumption at point A. Place a black point (plus symbol) on the graph to indicate Glacier's consumption after trade. Note: Dashed drop lines will automatically extend to both axes. BASIL (Millions of pounds) 64 56 BASIL (Millions of pounds) 48 40 32 24 16 8 0 64 56 40 0 48 PPF 24 8 PPF 0 8 0 16 The following graph shows the same…
"The Heckscher-Ohlin Model suggests that the basis of comparative advantage lies primarily in a difference in factor endowments between countries, and that if countries enter into international trade based on that comparative advantage, they will be better off compared to other theories." Discuss this statement
Suppose the United States has a comparative advantage over Mexico in producing pork. The principle of comparative advantage asserts that the United States should produce more pork than what it requires and export some of it to Mexico O Mexico has nothing to gain from importing United States pork O the United States should refrain altogether from producing pork and import all of what it requires from Mexico O the United States should produce a moderate quantity of pork and import the remainder of what it requires from Mexico Next
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. d. In this example, is absolute advantage the same as comparative advantage, or not? e. In what product should Germany specialize? In what product should Poland specialize?