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Chapter 20: Q. 15 (page 494)

What is splitting up the value chain?

Short Answer

Expert verified

Splitting up the value chain is many of the different stages of producing a good happen in different geographic locations.

Step by step solution

01

Step 1. Value Chain

A set of activities that are performed for the production of a good is called a value chain. It includes all stages from procurement of raw materials, processing, to delivering the final goods.

02

Step 2. Splitting up the value chain.

Splitting up the value chain is many of the different stages of producing a good happen in different geographic locations. It means different nations specialize in the various stages of production of a good.

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Most popular questions from this chapter

If the removal of trade barriers is so beneficial to international economic growth, why would a nation continue to restrict trade on some imported or exported products?

Table 20.15 shows how the average costs of production for semiconductors (the “chips” in computer memories) change as the quantity of semiconductors built at that factory increases.

a. Based on these data, sketch a curve with quantity produced on the horizontal axis and average cost of production on the vertical axis. How does the curve illustrate economies of scale?

b. If the equilibrium quantity of semiconductors demanded is 90,000, can this economy take full advantage of economies of scale? What about if quantity demanded is 70,000 semiconductors? 50,000 semiconductors? 30,000 semiconductors?

c. Explain how international trade could make it possible for even a small economy to take full advantage of economies of scale, while also benefiting from competition and the variety offered by several producers.

Look at Exercise 20.2. 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.

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

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