Economics: Private and Public Choice
16th Edition
ISBN: 9781337642224
Author: James D. Gwartney; Richard L. Stroup; Russell S. Sobel
Publisher: Cengage Learning US
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Chapter 2, Problem 18CQ
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When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods.
The following graphs show the production possibilities frontiers (PPFs) for Candonia and Sylvania. Both countries
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produce lemons and coffee, each initially (i.e., before specialization and trade) producing 18 million pounds of lemons and 9 million pounds of coffee, as indicated by the grey stars marked with the letter A.
Candonia has a comparative advantage in the production of lemons, while Sylvania has a comparative advantage in the production of coffee. Suppose that Candonia and Sylvania specialize in the production of the goods in which each has a comparative…
The Scenario :
Suppose that the market for good X is small in Malaysia and in Thailand , relative to the world market for good X . Both these markets are currently open to free trade . Suppose also that , relative to the rest of the world , Malaysia has a comparative advantage in producing good X whilst Thailand has a comparative disadvantage in producing good X. Malaysian consider good X a normal good , whereas Thais consider good X an inferior good .
The Question :
Using a set of appropriate diagrams ( with demand and supply curves ), show the comparison between the Malaysian and Thai markets for good X (side by side) - when an economic recession hits both Malaysia and Thailand simultaneously. Explain what happens to the price of good X in each country, as well as the quantity demanded, quantity supplied, and the quantity imported/exported. make sure that you include welfare tables and briefly explain the welfare effects on consumers, producers, and society as a whole - for each…
The model (graph) below represents a small country trade of good X after
the government decided to impose tariffs on import. Consider the case of
trade after tariffs. Please answer the following questions:
What area(s) represent the gain of surplus to producers?
What area(s) represent government revenue?
What area(s) represent the loss of surplus to consumers?
What area(s) represent consumers surplus?
What's the quantity imported?
Describe the impact of a tariff on social welfare. Refer to the graph to
support your answer.
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- Please assist me with this. Also, include a PDF graph. Much appreciated.arrow_forwardDuring the last 20 to 30 years, there have been a number of countries whose economies have experienced important economic expansion and development. One group of countries has been labeled the BRIC countries and the other the VISTA countries. Identify each of the nine countries and provide some insights about their economies and economic importance. The theories of absolute and comparative advantage have been offered as an economic rationale for trade between and among regions and countries. Compare and contrast the two concepts. Which of the two do you think is more important for explaining the growth in global trade during the last 25 years? Why”arrow_forwardWhile 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. Dynamic Comparative Advantage Product Life Cycle Theory Intra-Industry Specialization Scenario For many years, microchip firms in the nation of Tablon have struggled with high production costs compared to firms in the nation of Ghovia, because Tablon's soldering tools are outdated, forcing workers to work slowly. As a result, most microchips are made in Ghovia and exported. An inventor employed by a firm in Tablon comes up with a new way to solder chips that makes workers 40% more efficient. This innovation reduces costs and allows the firms in Tablon to take over the microchip market. In response, firms in Ghovia start to research how they can update their factories to be more cost effective. In the…arrow_forward
- Suppose an economist develops an international trade model based on the assumption that there are only two countries and two goods. We can say that the model is worthless, since the actual world has many countries trading many goods. can be useful in the classroom, but has no use in the real world. can be useful only in situations involving two countries and two goods. can be useful in helping economists to understand the complex world of international trade involving many countries and many goods.arrow_forwardClassify the statements as true or false by dragging them into the appropriate box. answer bank: (look at image for the answer bank) True Falsearrow_forwardIf a scale economy is the dominant technological factor defining or establishing comparative advantage, then the underlying facts explaining why a particular country dominates world markets in some product may be pure chance or historical accident. Using an example you have learnt in class, do you agree or disagree with the above statement? Explain the above phenomena in no more than 150 wordsarrow_forward
- Which situation describes when mutually beneficial trade occurs? Question options: Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Country A increases production of strawberries, and Country B decreases production of kiwis. When Country A trades with Country B to obtain kiwis, and when Country B trades with Country A to obtain strawberries, both countries can benefit. Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Neither country wants any of the produce they have a comparative advantage in, so both nations can benefit from trade. Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Country A increases production of strawberries, and Country B increases production of kiwis. When Country A trades with Country B to obtain…arrow_forwardA country may specialize in the production of a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Candonia and Lamponia. Both countries produce grain and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. 32 28 B COFFEE (Millions of pounds) 24 16 12 0 PPC 14 Candonia A 8 24 12 16 20 GRAIN (Millions of pounds) 28 32 ? COFFEE (Millions of pounds) 32 28 24 20 16 12 4 0 10 PPC 4 Lamponia A 4 11 8 12 16 20 24 GRAIN (Millions of pounds) 26 32 ?arrow_forwardA country may specialize in the production of a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Freedonia and Sylvania. Both countries produce grain and tea, each initially (i.e., before specialization and trade) producing 24 million pounds of grain and 12 million pounds of tea, as indicated by the grey stars marked with the letter A. Freedonia has a comparative advantage in the production of , while Sylvania has a comparative advantage in the production of . Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative advantage. After specialization, the two countries can produce a total of million pounds of tea and million pounds of grain. Suppose that Freedonia and Sylvania agree to trade. Each country focuses its…arrow_forward
- How do "comparative advantage" and "absolute advantage" influence international trade patterns, and what are the implications for global economic efficiency? A) Comparative advantage occurs when a country can produce a good at a lower opportunity cost than another country, leading to specialization and trade that benefits all trading partners by allowing them to consume more than they could in isolation. B) Comparative advantage is irrelevant to international trade, and only absolute advantage determines trade patterns. C) Both comparative and absolute advantages discourage international trade by promoting economic isolation. D) The concepts of comparative and absolute advantages are identical and have no distinct implications for trade.arrow_forwardAnalyzing the following (2x2) matrices. Identify the countries having certain advantages. Specify the benefits of trade for both countries. This matrix involves 2 countries exchanging 2 commodities Wheat (Labor hours/Unit of Output ) Steel (Labor hours/Unit of Output) Germany 30 40 France 20 80 (Numerical values reflect labor hours per unit of output) Will trade occur? Identify the country having the advantage in wheat production and the one having the advantage in steel production. Identify the production possibility frontiers for both countries. along with the gains from trade.arrow_forwardWe have export and import data of a country for the last two years. In addition, let's assume that we have the list of the most exported goods along with the countries that this country exports and imports to. How do we know if the trade pattern of this country is compatible with the comparative advantage theory? Also, what data do we need if we want to assess whether this country's trade pattern can be explained by the Hecksher-Ohlin theory?arrow_forward
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