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Chapter 19: Q. 32 (page 463)

In Exercise 19.31, is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?

Short Answer

Expert verified

Yes.

Step by step solution

01

Step1. Introduction

When two countries trade, the ask price refers to the tradeable or relative price comparing which the country takes decision whether or not to engage in trade.

02

Step2. Explanation

If the ask price is absurd, or they can domestically produce it at a cheaper rate, the country will refuse to trade.

In our case of question 19.31, Venezuela may refuse to trade with Canada, i.e. say "no thank you" if Canada ask for 500 or more barrels of oil in return of 1000 or less tons of lumber.

It is so because Venezuela produces oil and lumber in the ratio of 6000/3000= 2:1.

Hence, in such scenario, Venezuela may choose to say "no thank you" to the trade deal with Canada.

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Most popular questions from this chapter

If trade increases world GDP by 1% per year, what is the global impact of this increase over 10 years? How does this increase compare to the annual GDP of a country like Sri Lanka? Discuss. Hint: To answer this question, here are steps you may want to consider. Go to the World Development Indicators (online) published by the World Bank. Find the current level of World GDP in constant international dollars. Also, find the GDP of Sri Lanka in constant international dollars. Once you have these two numbers, compute the amount the additional increase in global incomes due to trade and compare that number to Sri Lanka’s GDP.

Can a nation’s comparative advantage change over

time? What factors would make it change?

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

Table 19.15 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.

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?
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