Chapter 19: Q 14. (page 462)
What are the two main sources of economic gains
from intra-industry trade?
Specialization and economies of scale.
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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 12 workers to make one video camera.
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?
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?
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?
In this example, is absolute advantage the same as comparative advantage, or not?
In what product should Germany specialize? In what product should Poland specialize?
What is absolute advantage? What is comparative advantage?
What is splitting up the value chain?
Table 19.15 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.
Why might a low-income country put up barriers
to trade, such as tariffs on imports?
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