Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Question
Chapter 26, Problem 7RQ
To determine
The reason for the lack of complete specialization.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
3. The following hypothetical production
possibilities tables are for China and the
United States. Assume that before
specialization and trade, the optimal
product mix for China is alternative B
and for the United States is alternative
U. LO20.2
a. Are comparative-cost conditions such
that
the
two
countries
should
specialize? If so, what product should
each produce?
b. What is the total gain in apparel and
chemical output that would result
from such specialization?
c. What are the limits of the terms of
trade? Suppose that the actual terms
of trade are 1 unit of apparel for 1 unit
of chemicals and 4 units of apparel for
6 units of chemicals. What are the
gains from specialization and trade for
each nation?
China Production Possibilities
Product
A
D
F
Apparel (in thousands)
30
24
18
12
Chemicals (in tons)
12
18
24
30
U.S. Production Possibilities
Product
R
T.
V
Apparel (in thousands)
hemicals (in tons)
10
8.
4
4
8.
12
16
20
p. 579
5. Suppose that the comparative-cost ratios of two products-
baby formula and tuna fish-are as follows in the hypotheti-
cal nations of Canswicki and Tunata:
Canswicki: 1 can baby formula = 2 cans tuna fish
1 can baby formula = 4 cans tuna fish
Tunata:
In what product should each nation specialize? Explain why
terms of trade of 1 can baby formula =
would be acceptable to both nations.
25 cans tuna fish
In Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles? LO26.2 a. Country A. b. Country B
Chapter 26 Solutions
Microeconomics
Ch. 26.2 - Prob. 1QQCh. 26.2 - Prob. 2QQCh. 26.2 - Prob. 3QQCh. 26.2 - Prob. 4QQCh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQ
Ch. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Prob. 10DQCh. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 14DQCh. 26 - Prob. 1RQCh. 26 - Prob. 2RQCh. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - Prob. 7RQCh. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - Prob. 11RQCh. 26 - Prob. 12RQCh. 26 - Prob. 13RQCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Prob. 3PCh. 26 - Prob. 4P
Knowledge Booster
Similar questions
- Price (dollars per shirt) 44 40 36 32 28 24 20 16 12 O 8 O 32 million The figure shows the market for shirts in the United States, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. The United States imposes a tariff on imported shirts, $4 per shirt. 24 million S In the figure above, with the tariff the United States imports 8 million D O 16 million 16 24 32 40 48 56 64 Quantity (millions of shirts per year) million shirts per year.arrow_forward25 20 15 10 LO 0 P a 0 O 3 (d) areas (b) + (c) + (d) + (e) (e) areas (a) + (b) + (c) + (d) e 6 b O S 9 12 15 18 25. If the free trade price is IP and this country imposes a trade tariff of $6, the loss to the economy as a result of this tariff is represented by O(a) area (a) in this graph (b) area (b) in this graph (c) areas (c) + (d) P* 21 IP D 24 Qarrow_forwardAnswer th following: If Nation 2 is to enter trade. In what good will it specialize? Why? If Nation 2 is to specialize in the good of its comparative advantage, how much good X and good Y will Nation 2 produce? Suppose after specialization, Nation 2 exports 100 units of the good of its comparative advantage [your answer in 1], how much of X and Y will it consumer after trade Will Nation 2 enjoy welfare gains from trade? Provide evidencearrow_forward
- Suppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?arrow_forwardAssume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 5 cans tuna fish Tunata: 1 can baby formula ≡ 7 cans tuna fish a. In what product should each nation specialize? Canswicki should produce _____- , and Tunata should produce _____ b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula ≡ 4 cans tuna fish: yes or no ii. 1 can baby formula ≡ 8 cans tuna fish: yes or no iii. 1 can baby formula ≡ 5.5 cans tuna fish: yes or noarrow_forwardWhich of the following statements about foreign trade is correct? Choose an answer: O 1. A good is imported if the world market price for this good is higher than the domestic opportunity costs of producing this good. O 2. A good is exported if the world market price for this good is lower than the domestic opportunity costs of producing this good. 3. The levying of a domestic duty rate on an imported good increases the producer surplus and reduces the domestic consumer surplus. O 4. If a country has an absolute advantage in one good, it also has a comparative advantage in that good. O 5. A particularly productive country can have a comparative advantage in all goods.arrow_forward
- Suppose that one country (Country A) subsidizes its exports and the other country (Country B) imposes a "countervailing" tariff that offsets its effect, so that in the end relative prices in the second country are unchanged. What happens to the terms of trade? What about welfare in the two countries? O A. From Country A's perspective, world relative supply will increase and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. O B. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect so Country A will definitely gain and Country B definitely loses. C. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will worsen its terms of trade. The countervailing…arrow_forwardAssume that the comparative-cost ratios of two products— baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fishIn what product should each nation specialize? Which of the following terms of trade would be acceptable to both nations: (a) 1 can baby formula ≡ 2 1 2 cans tuna fish; (b) 1 can baby formula ≡ 1 can tuna fish; (c) 1 can baby formula ≡ 5 cans tuna fish?arrow_forwardSuppose that two countries can produce wheat or cotton. If country A produces only wheat it can produce 38 units of wheat, and if it only produces cotton it can produce 45 units of cotton. If country B produces only wheat it can produce 27 units of wheat, and if it only produces cotton it can produce 35 units of cotton. Given the production possibilities frontiers above which of the following would be feasible terms of trade between country A and country B? O a. One unit of cotton for 0.92 units of wheat. O b. One unit of cotton for 0.72 units of wheat. O c. One unit of wheat for 1.08 units of cotton. O d. One unit of wheat for 1.35 units of cotton. O e. None of the other answers are feasible terms of trade.arrow_forward
- Assume the following information shows the output of 2 goods in 2 countries before specialization. [Also assume that the same amount of resources are used by both countries and are equally divided between their two industries, 1 and 3.] Automobiles Computers U.S. 20 15 Germany 15 5 Which country has the absolute advantage in automobile production? Why? In Germany, the opportunity cost of producing 1 automobile is the loss of _________. Which country has the comparative advantage in automobile production? Why? If both countries produce according to the respective comparative advantages, what goods will the U.S. and Germany end up producing after specialization? Gains from Trade: How many more units of total output (automobiles + computers) will be produced after specialization? Terms of Trade: If the U.S. and Germany trade with each other, and the U.S. sends Germany 10 computers, at least how many autos will the U.S. expect in return? Be specific. Draw the PPF for…arrow_forward? Q 5. The price of trade Suppose that Hungary and Luxembourg both produce boo and shoes. Hungary's opportunity cost of producing a pair shoes is 4 pairs of boots while Luxembourg's opportunity cost of producing a pair of shoes is 12 pairs of boots. By comparing the opportunity cost of producing shoes in t two countries, you can tell that has a comparative has a A+ advantage in the production of shoes and comparative advantage in the production of boots. Suppose that Hungary and Luxembourg consider trading shoes and boots with each other. Hungary can gain from specialization and trade as long as it receives more than of boots for each pair of shoes it exports to Luxembourg. Similarly, Luxembourg can gain from trade as long as it receives more than of shoes for each pair of boots it exports to Hungary. Based on your answer to the last question, which of the following prices of trade (that is, price of shoes in terms of boots) would allow both Luxembourg and Hungary to gain from trade?…arrow_forwardFigure: Trade 1 Price $200 175 150 Domestic Supply 500 7501,000:1,300 1,150 World Supply + Tariff World Supply Domestic Demand Quantity If the world price for the good in this figure is higher than the domestic price, a move to free international trade means that the domestic economy will become: O either a net importer or a net exporter of the good, but it is impossible to say which. O a net importer of the good. neither a net importer nor a net exporter of the good. a net exporter of the good.arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Exploring EconomicsEconomicsISBN:9781544336329Author:Robert L. SextonPublisher:SAGE Publications, Inc
Exploring Economics
Economics
ISBN:9781544336329
Author:Robert L. Sexton
Publisher:SAGE Publications, Inc