Chapter 20: Q. 15 (page 494)
What is splitting up the value chain?
Splitting up the value chain is many of the different stages of producing a good happen in different geographic locations.
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Brazil can produce pounds of beef or autos. In contrast, the United States can produce pounds of beef or autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producing autos? What is the opportunity cost of producing one pound of beef in Brazil? What is the opportunity cost of producing one pound of beef in the United States?
What is intra-industry trade?
In World Trade Organization meetings, what do
Do you think low-income countries lobby for?
Look at Table 20.9. Is there a range of trades for
which there will be no gains?
France and Tunisia both have Mediterranean
climates that are excellent for producing/harvesting
green beans and tomatoes. In France, it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.
a. Draw a production possibilities frontier for each
country. Hint: Remember the production
possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.
b. Identify which country has the absolute
advantage in green beans and which country has
the absolute advantage in tomatoes.
c. Identify which country has the comparative
advantage.
d. How much would France have to give up in
terms of tomatoes to gain from trade? How much
would it have to give up in terms of green beans?
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