Chapter 20: Q. 16 (page 494)
Are the gains from international trade more likely to be relatively more important to large or small countries?
Gains from international trade are more important to smaller nations than larger nations.
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You just got a job in Washington, D.C. You move
into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can clean faster than each of them. You determine that you are 70% faster at dishes and 10% faster with vacuuming. All of these tasks have to be done daily. Which jobs should you assign to your roommates to get the most free time overall? Assume you have the same number of hours to devote to cleaning. Now, since you are faster, you seem to get done quicker than your roommate. What sorts of problems may this create? Can you imagine a trade-related analogy to this problem?
What is splitting up the value chain?
You just overheard your friend say the following: “Poor countries like Malawi have no absolute advantages. They have poor soil, low investments in formal education and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?
In France, it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia, it takes two workers to produce one sweater, and three workers to produce one bottle of wine. Who has the absolute advantage in the production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?
Under what conditions does comparative advantage lead to gains from trade?
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