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Chapter 33: Q. 32 (page 805)

In Exercise 33.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?

Short Answer

Expert verified

Yes.

Step by step solution

01

Step1. Introduction

When two countries trade, the asking price refers to the tradeable or relative price comparing which the country decides whether or not to engage in trade.

02

Step2. Explanation

If the asking price is absurd, or they can domestically produce it at a cheaper rate, the country will refuse to trade.

In our case of question 19.31, Venezuela may refuse to trade with Canada, i.e. say "no thank you" if Canada asks for 500 or more barrels of oil in return for 1000 or fewer tons of lumber.

It is so because Venezuela produces oil and lumber in the ratio of 6000/3000= 2:1.

Hence, in such a scenario, Venezuela may choose to say "no thank you" to the trade deal with Canada.

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Most popular questions from this chapter

In France it takes one worker to produce one sweater, and one worker to produce one bottle of wine. In Tunisia it takes two workers to produce one sweater, and three workers to produce one bottle of wine. Who has the absolute advantage in production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?

France and Tunisia both have Mediterranean climates that are excellent for producing/harvesting green beans and tomatoes. In France it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.

a. Draw a production possibilities frontier for each country. Hint: Remember the production possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.

b. Identify which country has the absolute advantage in green beans and which country has the absolute advantage in tomatoes.

c. Identify which country has the comparative advantage.

d. How much would France have to give up in terms of tomatoes to gain from trade? How much would it have to give up in terms of green beans?

Why does the United States not have an absolute advantage in coffee?

Look at Table 33.9. Is there a range of trades for which there will be no gains?

You just got a job in Washington, D.C. You move into an apartment with some acquaintances. All your roommates, however, are slackers and do not clean up after themselves. You, on the other hand, can clean faster than each of them. You determine that you are 70% faster at dishes and 10% faster with vacuuming. All of these tasks have to be done daily. Which jobs should you assign to your roommates to get the most free time overall? Assume you have the same number of hours to devote to cleaning. Now, since you are faster, you seem to get done quicker than your roommate. What sorts of problems may this create? Can you imagine a trade-related analogy to this problem?
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