Chapter 20: Q 28. (page 494)
Can a nation’s comparative advantage change over
time? What factors would make it change?
Of course yes, a nation's comparative advantage changes over time.
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If trade increases world GDP by 1% per year,
what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by
the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount of the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.
From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.
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?
Why might intra-industry trade seem surprising
from the point of view of comparative advantage?
What is intra-industry trade?
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