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Chapter 20: Q. 13 (page 493)

What is intra-industry trade?

Short Answer

Expert verified

Intra-industry trade is an international trade of goods within the same industry and the products are both exported and imported by the country.

Step by step solution

01

Step 1. Meaning of international trade.

The exchange of goods and services across international borders or territories is called international trade.

02

Step 2. Meaning of intra-industry trade.

Intra-industry trade is an international trade of goods within the same industry and the products are both exported and imported by the country. For example: USA imports and exports for automobile industry.

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Most popular questions from this chapter

True or False: The source of comparative advantage must be natural elements like climate and mineral deposits. Explain.

How does comparative advantage lead to gains from trade?

From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.

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 the production of sweaters? Who has the absolute advantage in the production of wine? How can you tell?

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 12workers 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?
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