Back to AssignmentAttempts6. Transportation costs and comparative advantageAverage / 4The following graph shows a fictional world economy that consists of only two countries,increasing-cost conditions. Note that the left-hand part of the diagram is a mirror imagesupply and demand curves slope in directions opposite their usual directions.Greenberg302421+18AY1512963PRICE OF CARS (Thousands of dollars)*DGS2710 9 8 7 6 5 4 3 2 1BorvilleCARSSBDB1 2 3 4 5 6 7 8 9 10In the absence of trade (that is, autarky), the equilibrium price in Greenberg is $$In the absence of trade, which of the following statements is correct?(Hint: Enter all monetary values in full. For example, $7,000 rather than $7.)O Greenberg has a comparative advantage in the production of cars.O Greenberg has the comparative disadvantage in production of cars.O Greenberg and Borville are equally good at producing cars.Now suppose both countries open up to international trade with each other.For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports andimports when there are no transportation costs. Enter these amounts into the first two rows of the following table.Equalizing Price Consumption at Equalizing Price(Dollars)(Cars)Without Transportation CostsGreenbergBorvilleGreenbergBorvilleWith Transportation Costs, and the equilibrium price in Borville isProduction at Equalizing Price(Cars)Now suppose that the per-unit cost of transporting a car between Greenberg and Borville is $6,000.For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports andimports when transportation costs equal $6,000. Enter these amounts into the last two rows of the previous table.Compare free trade in the absence of transportation costs with the case when transportation costs are included.Borville will produce more, consume less, and import less.Borville will produce less, consume more, and export less.Greenberg will produce less, consume more, and export less.Greenberg will produce more, consume less, and import less.Exports Imports(Cars) (Cars)Which of the following statements about how the trade between Greenberg and Borville differs in the presence of transportation costs relative to tradewhen then are no transportation costs are correct? Check all that apply.

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Comparative Advantage and Absolute Advantage Analysis

The theory of absolute advantage was given by Adam Smith in the year 1776.

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6. Transportation costs and comparative advantage
Average / 4
The following graph shows a fictional world economy that consists of only two countries,
increasing-cost conditions. Note that the left-hand part of the diagram is a mirror image
supply and demand curves slope in directions opposite their usual directions.
Greenberg
30
24
21
+18
AY
15
12
9
6
3
PRICE OF CARS (Thousands of dollars)
*
DG
S
27
10 9 8 7 6 5 4 3 2 1
Borville
CARS
SB
DB
1 2 3 4 5 6 7 8 9 10
In the absence of trade (that is, autarky), the equilibrium price in Greenberg is $
$
In the absence of trade, which of the following statements is correct?
(Hint: Enter all monetary values in full. For example, $7,000 rather than $7.)
O Greenberg has a comparative advantage in the production of cars.
O Greenberg has the comparative disadvantage in production of cars.
O Greenberg and Borville are equally good at producing cars.
Now suppose both countries open up to international trade with each other.
For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and
imports when there are no transportation costs. Enter these amounts into the first two rows of the following table.
Equalizing Price Consumption at Equalizing Price
(Dollars)
(Cars)
Without Transportation Costs
Greenberg
Borville
Greenberg
Borville
With Transportation Costs
, and the equilibrium price in Borville is
Production at Equalizing Price
(Cars)
Now suppose that the per-unit cost of transporting a car between Greenberg and Borville is $6,000.
For each country, use the previous graph to compute the equalizing price, consumption and production at that price, and the quantity of exports and
imports when transportation costs equal $6,000. Enter these amounts into the last two rows of the previous table.
Compare free trade in the absence of transportation costs with the case when transportation costs are included.
Borville will produce more, consume less, and import less.
Borville will produce less, consume more, and export less.
Greenberg will produce less, consume more, and export less.
Greenberg will produce more, consume less, and import less.
Exports Imports
(Cars) (Cars)
Which of the following statements about how the trade between Greenberg and Borville differs in the presence of transportation costs relative to trade
when then are no transportation costs are correct? Check all that apply.

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