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Chapter 19: Q 20. (page 462)

You just overheard your friend say the following:

“Poor countries like Malawi have no absolute

advantages. They have poor soil, low investments in formal education, and hence low-skill workers, no capital, and no natural resources to speak of. Because they have no advantage, they cannot benefit from trade.” How would you respond?

Short Answer

Expert verified

I will respond in a knowledgeable manner.

Step by step solution

01

Step 1. Definition

The ability to produce a greater quantity of a good or service with the same number of inputs or to produce the same quantity of a good or service using a lesser quantity of inputs is referred to as absolute advantage.

02

Step 2. Explanation

Advantageous trade can happen only if opportunity costs differ and this gives a comparative advantage.

A beneficial trade depends mainly upon comparative advantage and it has no relation with absolute advantage. So Malavi doesn’t have to be in absolute advantage to have an advantageous trade, only comparative advantage is sufficient.

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Most popular questions from this chapter

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 12 workers to make one video camera.

  1. 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?

  2. 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?

  3. 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?

  4. In this example, is absolute advantage the same as comparative advantage, or not?

  5. In what product should Germany specialize? In what product should Poland specialize?

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?

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?

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

Why might intra-industry trade seem surprising

from the point of view of comparative advantage?
See all solutions

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