Chapter 20: Q 27. (page 494)
Why might a low-income country put up barriers
to trade, such as tariffs on imports?
Because of various reasons they want to increase trade barriers.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
In Germany, it takes three workers to make one television and four workers to make one video camera. In Poland, it takes six workers to make one television and workers to make one video camera.
(a) Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell?
(b) Calculate the opportunity cost of producing one additional television set in Germany and in Poland. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of televisions?
(c) Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras?
(d) In this example, is the absolute advantage the same as comparative advantage, or not?
(e) In what product should Germany specialize? In what product should Poland specialize?
Under what conditions does comparative advantage lead to gains from trade?
Are the gains from international trade more likely to be relatively more important to large or small countries?
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?
Consider two countries: South Korea and Taiwan.
Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?
What do you think about this solution?
We value your feedback to improve our textbook solutions.
