Chapter 20: Q. 12 (page 493)
How does comparative advantage lead to gains from trade?
Comparative advantage leads to gains from trade when the country specializes in the product which it has a more comparative advantage.
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Look at Table 20.9. Is there a range of trades for
which there will be no gains?
Are differences in geography behind the
differences in absolute advantages?
In Exercise 20.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?
What is splitting up the value chain?
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.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. 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?
c. 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?
d. In this example, does each country have an absolute advantage and a comparative advantage
in the same good?
e. In what product should Japan specialize? In what
product should Malaysia specialize?
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