Chapter 33: Q. 10. (page 803)
What factors does Paul Krugman identify that supported expanding international trade in the 1800s?
Paul Krugman mentions 1869 as the year after which trade expanded.
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Table 19.15 shows how the average costs of production for semiconductors (the “chips” in computer memories) change as the quantity of semiconductors built at that factory increases.
a. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?
b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors 50,000 semiconductors? 30,000 semiconductors?
c. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.
From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.
What factors does Paul Krugman identify that supported expanding international trade in the 1800s?
Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.
Under what conditions does comparative advantage lead to gains from trade?
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