Chapter 20: Q. 18 (page 494)
Why does the United States not have an absolute advantage in coffee?
The United States does not have an absolute advantage in coffee because the climatic condition is unfavorable for the production of coffee.
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Table 20.15 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.
What is intra-industry trade?
Are the gains from international trade more likely to be relatively more important to large or small countries?
Do consumers benefit from intra-industry trade?
Can a nation’s comparative advantage change over
time? What factors would make it change?
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