Chapter 19: Q7. (page 461)
If the removal of trade barriers is so beneficial to international economic growth, why would a nation continue to restrict trade on some imported or exported products?
Trade restrictions are imposed to protect domestic markets & producers, consumers, for economy's forex & BOP management.
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You just overheard your friend say the following:
“Poor countries like Malawi have no absolute
advantages. They have poor soil, low investments in formal education, and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?
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?
France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.
a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.
b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes.
c. Identify which country has the comparative advantage.
d. How much would France have to give up in terms of tomatoes to gain from trade? How much would it have to give up in terms of green beans?
Look at Table 19.9. Is there a range of trades for
which there will be no gains?
In Exercise 19.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?
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