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Chapter 20: Q 28. (page 494)

Can a nation’s comparative advantage change over

time? What factors would make it change?

Short Answer

Expert verified

Of course yes, a nation's comparative advantage changes over time.

Step by step solution

01

Step 1. Definition

Comparative advantage is defined as the capability of an economy to produce a good or service at a reduced opportunity cost as compared to its trading partners.

02

Step 2. Explanation

A nations comparative advantage may change overtime because a product in which a nation have comparative advantage over others depends upon various reasons like domestic firm's production, specialization, capability, etc. so if there is a negative change in these factors there is a negative impact on the comparative advantage of that country.

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Most popular questions from this chapter

How does comparative advantage lead to gains from trade?

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.

What is splitting up the value chain?

What is the absolute advantage? What is comparative advantage?

France and Tunisia both have Mediterranean

climates that are excellent for producing/harvesting

green beans and tomatoes. In France, it takes two hours for each worker to harvest green beans and two hours to harvest a tomato. Tunisian workers need only one hour to harvest the tomatoes but four hours to harvest green beans. Assume there are only two workers, one in each country, and each works 40 hours a week.

a. Draw a production possibilities frontier for each

country. Hint: Remember the production

possibility frontier is the maximum that all workers can produce at a unit of time which, in this problem, is a week.

b. Identify which country has the absolute

advantage in green beans and which country has

the absolute advantage in tomatoes.

c. Identify which country has the comparative

advantage.

d. How much would France have to give up in

terms of tomatoes to gain from trade? How much

would it have to give up in terms of green beans?
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