Chapter 19: Q 21. (page 462)
Look at Table 19.9. Is there a range of trades for
which there will be no gains?
Both Mexico and the US have to decide between shoes and refrigerators.
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In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.
a. Who has the absolute advantage in the production of rubber or radios? How can you tell?
b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?
c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?
e. In what product should Japan specialize? In what product should Malaysia specialize?
What are the two main sources of economic gains
from intra-industry trade?
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.
Can a nation’s comparative advantage change over
time? What factors would make it change?
How can there be any economic gains for a country from both importing and exporting the same good, like cars?
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