6. Violations of the factor-endowment theory of trade While different natural resources and the theory of comparative advantage can explain many trade patterns, they cannot explain all types of tra economists observe. Consider each scenario in the following table and determine which theory best explains the trade pattern described. Scenario Since the turn of the century, nearly all X-ray machines purchased by hospitals have been made in Alloway. However, engineers in Osteoville recently designed an X-Ray machine that produces much more accurate results, leading to fewer malpractice cases and more reliable diagnoses. These new X-ray machines quickly become the industry standard. As a result of this, the production of X-ray machines is thriving in Osteoville, while firms in Alloway lose market share and begin trying to develop a new source of advantage. Ice wine is a special spirit that can only be made during a few months in the winter. The nations of Fruzenton and Grappovia are in different hemispheres, and each produces ice wine. During each nation's winter, its ice wine industry produces enough to meet domestic demand and export to the other country. The ice wine exchanged between the two nations is nearly identical. For many years, the nation of Catchester has found it challenging to compete internationally in the market for crab because dangerous work conditions have steered many successful fisherfolk toward safer and more stable careers. In order to attract workers, the Catchester government passed a law providing life insurance policies to all Catchester crab industry workers. This successfully incentivized many former fisherfolk to return to the seas for a career in crab fishing. Catchester is now able to compete more effectively on a global scale and has become a major international exporter of crab. Dynamic Comparative Advantage O Product Life Cycle Theory Intra-Indu Specializat O
6. Violations of the factor-endowment theory of trade While different natural resources and the theory of comparative advantage can explain many trade patterns, they cannot explain all types of tra economists observe. Consider each scenario in the following table and determine which theory best explains the trade pattern described. Scenario Since the turn of the century, nearly all X-ray machines purchased by hospitals have been made in Alloway. However, engineers in Osteoville recently designed an X-Ray machine that produces much more accurate results, leading to fewer malpractice cases and more reliable diagnoses. These new X-ray machines quickly become the industry standard. As a result of this, the production of X-ray machines is thriving in Osteoville, while firms in Alloway lose market share and begin trying to develop a new source of advantage. Ice wine is a special spirit that can only be made during a few months in the winter. The nations of Fruzenton and Grappovia are in different hemispheres, and each produces ice wine. During each nation's winter, its ice wine industry produces enough to meet domestic demand and export to the other country. The ice wine exchanged between the two nations is nearly identical. For many years, the nation of Catchester has found it challenging to compete internationally in the market for crab because dangerous work conditions have steered many successful fisherfolk toward safer and more stable careers. In order to attract workers, the Catchester government passed a law providing life insurance policies to all Catchester crab industry workers. This successfully incentivized many former fisherfolk to return to the seas for a career in crab fishing. Catchester is now able to compete more effectively on a global scale and has become a major international exporter of crab. Dynamic Comparative Advantage O Product Life Cycle Theory Intra-Indu Specializat O
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:6. Violations of the factor-endowment theory of trade
While different natural resources and the theory of comparative advantage can explain many trade patterns, they cannot explain all types of trade that
economists observe.
Consider each scenario in the following table and determine which theory best explains the trade pattern described.
Scenario
Since the turn of the century, nearly all X-ray machines purchased by hospitals have been
made in Alloway. However, engineers in Osteoville recently designed an X-Ray machine
that produces much more accurate results, leading to fewer malpractice cases and more
reliable diagnoses. These new X-ray machines quickly become the industry standard. As a
result of this, the production of X-ray machines is thriving in Osteoville, while firms in
Alloway lose market share and begin trying to develop a new source of advantage.
Ice wine is a special spirit that can only be made during a few months in the winter. The
nations of Fruzenton and Grappovia are in different hemispheres, and each produces ice
wine. During each nation's winter, its ice wine industry produces enough to meet domestic
demand and export to the other country. The ice wine exchanged between the two nations
is nearly identical.
For many years, the nation of Catchester has found it challenging to compete
internationally in the market for crab because dangerous work conditions have steered
many successful fisherfolk toward safer and more stable careers. In order to attract
workers, the Catchester government passed a law providing life insurance policies to all
Catchester crab industry workers. This successfully incentivized many former fisherfolk to
return to the seas for a career in crab fishing. Catchester is now able to compete more
effectively on a global scale and has become a major international exporter of crab.
Dynamic
Comparative
Advantage
O
Product
Life Cycle
Theory
Intra-Industry
Specialization
O
O
O
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