Econ 1730 Spring 19
Date:
Name:
Course:
Econ 1730
Section:
Chapter 3
You do not need to include in the assignment. But please review the following key terms.
Absolute advantage
Comparative advantage
Intra-industry trade
Specialization
Economies of scale
Please list and answer the following questions and submit in the assignment folder:
1)
Explain the following paragraph in your own words.
"A nation which has can produce at a lower cost
when measured in terms of opportunity cost
is
said to have a comparative advantage. Even though the U. S. has an absolute advantage in
needing fewer workers to produce a given quantity of either shoes or refrigerators. Mexico has
a comparative advantage in the production of shoes and the U. S. has a comparative
advantage in the production of refrigerators. Comparative advantage identifies the area where
a producer's absolute advantage is relatively greatest,
or where the producer's absolute
disadvantage in productivity is relatively least.
The U.S. can produce 1,000 shoes with four-
fifths as many workers as Mexico ( 4 vs. 5), but can produce 1,000 refrigerators with only one-
quarter as many workers (1 vs. 4). Thus, the comparative advantage of the U. S., where its
absolute productivity advantage is relatively greatest, lies with refrigerators, and Mexico's
comparative advantage, where its absolute productivity disadvantage is least, is in the
production of shoes."
2) Using the following exhibit from the textbook, explain how the U.S. can gain in trade even
though it has an absolute advantage in both shoes and refrigerators. (Your answer should
include whether more product is available via specialization.)
