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Chapter 19: Q 23. (page 462)

Does intra-industry trade contradict the theory of

comparative advantage?

Short Answer

Expert verified

No, it doesn't contradict.

Step by step solution

01

Step 1. Definition

Intra-industry trade is the exchange of alike products belonging to the same industry.

The ability to produce a good or service at a relatively lower opportunity cost than others is known as comparative advantage.

02

Step 2. Explanation

No, intra- industry trade doesn’t contradict the comparative advantage theory because both deal with different areas of trade. Like in Intra industry trade we deal with similar or identical products and in comparative advantage, we deal with different products and skills. So intra- industry trade only adds up or reinforces the theory and allows additional skills to the comparative advantage theory.

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Most popular questions from this chapter

Look at Table 19.9. Is there a range of trades for

which there will be no gains?

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 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 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?

Why might intra-industry trade seem surprising

from the point of view of comparative advantage?

Why might a low-income country put up barriers

to trade, such as tariffs on imports?
See all solutions

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