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Chapter 33: Q.16 (page 804)

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

Short Answer

Expert verified

Small countries

Step by step solution

01

Step 1. Introduction 

International trade refers to the exchange of goods, services, and resources across international boundaries.

02

Step 2. Explanation 

In international trade, smaller countries receive greater benefits than larger countries. Smaller countries need international trade more than the larger countries as they have limited scope in internal trade. without international trade, they have limited possibilities to gain from comparative advantage.

Larger countries are already enjoying the benefits of internal trade so they have less need for international trade.

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Most popular questions from this chapter

How can there be any economic gains for a country from both importing and exporting the same good, like cars?

What is splitting up the value chain?

What are the two main sources of economic gains from intra-industry trade?

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.

a. Who has the absolute advantage in the production of rubber or radios? How can you tell?

b. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?

c. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?

d. In this example, does each country have an absolute advantage and a comparative advantage in the same good?

e. In what product should Japan specialize? In what product should Malaysia specialize?

Are differences in geography behind the differences in absolute advantages?
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