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Chapter 33: Q.24 (page 804)

Do consumers benefit from intra-industry trade

Short Answer

Expert verified

Yes

Step by step solution

01

Step 1. Introduction 

Intra-industry trade refers to the trade of similar types of products between different countries. A significant portion of international trade is composed of trade between advanced high-income countries. who trade similar products.

02

Step 2. Explanation 

Consumers are benefited from intra-industry trade as they get a greater variety of products. Intra-industry trade can help in product differentiation in the same industry. International competition is also likely to drive prices down.

For instance, if a country produces cars, without trade the variety of cars in the market would be limited. There would be very small degree of competition in the domestic market. But intra-industry trade would competition and variety in the market.

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Most popular questions from this chapter

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

Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of \(10 per phone and South Korea can produce 50 million mobile phones at \)5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?

Look at Exercise 33.2. Compute the opportunity costs of producing sweaters and wine in both France and Tunisia. Who has the lowest opportunity cost of producing sweaters and who has the lowest opportunity cost of producing wine? Explain what it means to have a lower opportunity cost.

Why might intra-industry trade seem surprising from the point of view of comparative advantage?

How does comparative advantage lead to gains from trade?
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