Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 34, Problem 11E
To determine
To explain:
The effect on the export supply and import
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Which of the following best explains the concept of "Comparative Advantage" in international trade? a) A country should produce goods
in which it has an absolute advantage and trade for those where it does not. b) A country should only export goods and import nothing
to maintain a positive trade balance. c) A country should specialize in the production of goods for which it has the lowest opportunity
cost compared to other countries. d) A country should diversify its production across various sectors to avoid dependence on a single
export commodity.
Create a diagram similar to Figure 1.4 in which demand in both countries is identical and trade arises because of differences in supply. Do another diagram in which supply is identical across nations but differences in demand lead to trade.
Suppose that when a country opens to free trade in a good, the price of that good rises from $10 to $15. As a result, the domestic quantity supplied rises from 1,000 to 1,020 and the domestic quantity demanded falls from 1,000 to 500. What are the gains from trade? Assume linear domestic supply and demand curves.
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