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ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN: 9780190931919
Author: NEWNAN
Publisher: Oxford University Press
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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."
Transcribed Image Text:Back to Assignment
Attempts
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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- do you think countries with distinctively different cultural, historical, and economic histories can effectively enter into a trade agreement? (at least one paragraph). Select one regional trading bloc and discuss the economic motivations for that group of countries to form an agreement. (at least one paragraph) Do you think the countries in the trading bloc you selected are likely to have cross-cultural similarities or differences? Explain. (at least one paragraph).arrow_forwardHow does specialization increase production?arrow_forwardWhich of the below statements does NOT reflect the ideas expressed by the author Charles Wheelan in the chapter titled, "Trade and Globalization," in the book, Naked Economics: Undressing the Dismal Science? Group of answer choices A majority of U.S. jobs lost since 2000 have been to technology and not to China, Vietnam or Mexico. Nearly all theory and evidence suggest that the benefits of international trade far exceed the costs. Tariffs and other barriers to imports will bring manufacturing jobs back into the U.S., exactly as President Trump promised. Trade creates losers, like any kind of market.arrow_forward
- American worker takes 20 hours to produce one computer and 300 hours to produce an RV. A Japanese worker takes 30 hours to produce one computer and 450 Hours to produce an RV. Which country has a comparative advantage in what product? Why?arrow_forwardUse the following table to answer a)According to the opportunity cost associated with specialization of each product, if both countries decide to trade with each other (no protectionism), which product will England specialize? b)According to the opportunity cost associated with specialization of each product, if both countries decide to trade with each other (no protectionism), which product will Portugal specialize? c)Please calculate the opportunity cost of specializing in one single production (fill in the opportunity cost of each cell below).arrow_forwardDiscuss the opportunity cost you incur for some activity in your life. Additionally, what activity do you feel you have comparative advantage in?arrow_forward
- Are differences in geography behind the differences in absolute advantages?arrow_forwardFinally, Canada and Australia are both English-speaking countries with not-too dissimilar population sizes. However, Canada’s trade is twice as large as that of Australia’s. to what extent, does comparative advantage help explain this?arrow_forwardWhich of the following is TRUE regarding trade and wages? Countries with low productivity levels will always have lower wages than high-productivity nations whether they trade or not. Trade can increase wages by increasing the productivity of labor. Trade directly increases productivity, which in turn increases wages. Trade helps to equalize wages between high- and low-productivity countries.arrow_forward
- Assume that you were a small country, what would you rather have a comparative or absolute advantage with trading? Explain your reasoning.arrow_forwardHow does specialization and trade benefit both individuals and nations?arrow_forwardListen carefully to the podcast titled 'Is America losing faith in Free Trade?. What would help explain why support for trade liberalisation in places such as the United States has decreased in the past decade even though economists argue free trade is beneficial for the economy? The benefits and costs of trade are unequally distributed within society. The benefits of free trade tends to fall on people who are less well off, who either lose their jobs or lose wages to other countries which angers the wealthy investors. O The wage gap between high and low-skilled workers is closing which decreases levels of productivity. The benefits of free trade tend to fall on people who are less well off, who either lose their jobs or lose wages to other countries.arrow_forward
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