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Chapter 8: Problem 2

For each of the following trade relationships, explain the likely source of the comparative advantage of each of the exporting countries. a. The United States exports software to Venezuela, and Venezuela exports oil to the United States. b. The United States exports airplanes to China, and China exports clothing to the United States. c. The United States exports wheat to Colombia, and Colombia exports coffee to the United States.

Short Answer

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a. United States exports software to Venezuela, and Venezuela exports oil to the United States. b. United States exports airplanes to China, and China exports clothing to the United States. c. United States exports wheat to Colombia, and Colombia exports coffee to the United States. Answer: a. The United States has a comparative advantage in exporting software due to advanced technology, skilled labor force, and research and development capabilities, while Venezuela has a comparative advantage in exporting oil due to its vast oil reserves and petroleum sector expertise. b. The United States has a comparative advantage in exporting airplanes due to sophisticated technology, skilled labor force, and strong aviation infrastructure, while China has a comparative advantage in exporting clothing due to its large and low-cost labor force and a well-established export-oriented manufacturing sector. c. The United States has a comparative advantage in exporting wheat because of its large agricultural lands, advanced farming technologies, and favorable climate conditions, while Colombia has a comparative advantage in exporting coffee due to its suitable climate, rich soil, and established coffee cultivation practices.

Step by step solution

01

a. United States exports software to Venezuela, and Venezuela exports oil to the United States.

The likely source of the comparative advantage for the United States in exporting software can be traced to their advanced technology, skilled labor force, and research and development capabilities. This allows them to produce and export high-quality software products at a relatively lower oppurtunity cost. On the other hand, Venezuela has vast oil reserves and a comparative advantage in the petroleum sector, which makes it more efficient for them to produce and export oil to the United States. This trade relationship utilizes the unique strengths of each country, opening avenues for specialization and mutually beneficial trade.
02

b. United States exports airplanes to China, and China exports clothing to the United States.

The United States has a comparative advantage in the aircraft manufacturing industry due to its sophisticated technology, skilled labor force, and strong aviation infrastructure. This enables the country to efficiently produce advanced airplanes and export them to China at a lower opportunity cost. Meanwhile, China has a comparative advantage in the clothing industry, mainly due to its large and low-cost labor force and a well-established export-oriented manufacturing sector. These factors contribute to China being able to produce clothing in large quantities at a lower opportunity cost, which they can then export to the United States.
03

c. United States exports wheat to Colombia, and Colombia exports coffee to the United States.

The United States enjoys a comparative advantage in wheat production as a result of its large agricultural lands, advanced farming technologies, and favorable climate conditions. This allows the United States to efficiently produce wheat at a lower opportunity cost, enabling them to export wheat to Colombia. In contrast, Colombia has a comparative advantage in coffee production due to its suitable climate, rich soil, and established coffee cultivation practices. These factors contribute to Colombia producing high-quality coffee beans at a lower opportunity cost than the United States, which drives their coffee exports to the US. This trade relationship allows both countries to specialize in their areas of comparative advantage and benefit from international trade.

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Most popular questions from this chapter

The United States is highly protective of its agricultural industry, imposing import tariffs, and sometimes quotas, on imports of agricultural goods. This chapter presented three arguments for trade protection. For each argument, discuss whether it is a valid justification for trade protection of U.S. agricultural products.

The U.S. Census Bureau keeps statistics on U.S. imports and exports on its website. The following steps will take you to the foreign trade statistics. Use them to answer the questions below. i. Go to the U.S. Census Bureau's website at www.census.gov ii. Under the heading "Topics" select "Business" and then select "International Trade" under the section "Data by Sector" in the left menu bar iii. At the top of the page, select the tab "Data" iv. In the left menu bar, select "Country/Product Trade" v. Under the heading "North American Industry Classification System (NAICS)-Based," select "NAICS web application" vi. In the drop-down menu "3-digit and 6 -digit NAICS by country," select the product category you are interested in, and hit "Go" vii. In the drop-down menu "Select 6 -digit NAICS," select the good or service you are interested in, and hit "Go" viii. In the drop-down menus that allow you to select a month and year, select "December" and "2013," and hit "Go" ix. The right side of the table now shows the import and export statistics for the entire year 2013 . For the questions below on U.S. imports, use the column for "Consumption Imports, Customs Value Basis." a. Look up data for U.S. imports of hats and caps: in step (vi), select "(315) Apparel \& Accessories" and in step (vii), select "(315220) Men's and Boys' Cut and Sew Apparel." From which country do we import the most apparel? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in apparel production? b. Look up data for U.S. imports of grapes: in step (vi), select "(111) Agricultural Products" and in step (vii), select "(111332) Grapes." From which country do we import the most grapes? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in grape production? c. Look up data for U.S. imports of food product machinery: in step (vi), select "(333) Machinery, Except Electrical" and in step (vii), select "333241 Food Product Machinery." From which country do we import the most food product machinery? Which of the three sources of comparative advantage (climate, factor endowments, and technology) accounts for that country's comparative advantage in food product machinery?

Producers in import-competing industries often make the following argument: "Other countries have an advantage in production of certain goods purely because workers abroad are paid lower wages. In fact, American workers are much more productive than foreign workers. So import-competing industries need to be protected." Is this a valid argument? Explain your answer.

Shoes are labor-intensive and satellites are capitalintensive to produce. The United States has abundant capital. China has abundant labor. According to the Heckscher-Ohlin model, which good will China export? Which good will the United States export? In the United States, what will happen to the price of labor (the wage) and to the price of capital?

Since 2000 , the value of U.S. imports of men's and boy's apparel from China has more than tripled. What prediction does the Heckscher-Ohlin model make about the wages received by labor in China?
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