Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 33: Q. 9. (page 803)

Under what conditions does comparative advantage lead to gains from trade?

Short Answer

Expert verified

Due to exchange opportunities and higher total output and level of consumption, comparative advantage lead to gain from trade.

Step by step solution

01

Step 1. Meaning of comparative advantage.

Is an economy's ability to produce a particular good or services at a lower opportunity cost than its trading partners. Basically, comparative advantage refers to the products that a country can produce more cheaply or easily than other countries.

02

Step 2. Conditions that lead to gains from trade under comparative advantage.

a) Due to this comparative advantage, this lead lead to results in exchange opportunities that lead to consumption opportunities beyond the PPC.

b) Due to the trade between two countries or agents, it allows the countries to enjoy a higher total output and level of consumption than what would have been possible domestically.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

In World Trade Organization meetings, what do you think low-income countries lobby for?

Are the gains from international trade more likely to be relatively more important to large or small countries?

Is it possible to have a comparative advantage in the production of a good but not to have an absolute advantage? Explain

In Germany, it takes three workers to make one television and four workers to make one video camera. In Poland, it takes six workers to make one television and workers to make one video camera.

(a) Who has the absolute advantage in the production of televisions? Who has the absolute advantage in the production of video cameras? How can you tell?

(b) Calculate the opportunity cost of producing one additional television set in Germany and in Poland. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of televisions?

(c) Calculate the opportunity cost of producing one video camera in Germany and in Poland. Which country has a comparative advantage in the production of video cameras?

(d) In this example, is the absolute advantage the same as comparative advantage, or not?

(e) In what product should Germany specialize? In what product should Poland specialize?

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?
See all solutions

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free