Which country has a comparative advantage in producing shoes? With international trade, explain which country would export shoes and how the price of shoes in the importing country and the quantity produced by the importing country would change. Explain which country gains from this trade.

Which country has a comparative advantage in producing shoes? With international trade, explain which country would export shoes and how the price of shoes in the importing country and the quantity produced by the importing country would change. Explain which country gains from this trade.

Economics Today and Tomorrow, Student Edition

1st Edition

ISBN:9780078747663

Author:McGraw-Hill

Publisher:McGraw-Hill

Chapter5: Buying The Necessities

Section: Chapter Questions

Problem 20AA

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Concept explainers

Comparative Advantage and Absolute Advantage Analysis

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

Question

The figure shows the markets for shoes if there is no trade between the United States and Brazil.

Which country has a comparative advantage in producing shoes?
With international trade, explain which country would export shoes and how the price of shoes in the importing country and the quantity produced by the importing country would change.
Explain which country gains from this trade.

Price (dollars per pair)
Price (dollars per pair)
40.
40
30
30.
20
20-
10
10.
10
2
3
Quantity (millions of pairs per year)
Quantity (millions of pairs per year)

Definition Definition Any of the various net benefits or net gains that a country or trader makes by participating in international trade.

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