Concept explainers
Describe the comparative and absolute advantages between US and china.
Explanation of Solution
The US has absolute and
Absolute advantage: Absolute advantage is an advantage of a country to produce more than its competitors using the same or less production time and resources.
Comparative advantage: Comparative advantage is an advantage of a country to produce at a lower
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Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS (LL)W/ACC.
- The country of "Econoland" can use its resources to produce either 500 tons of crab or 200 tons of plywood. Its rival, "Arcadonia," is able to produce either 200 tons of crab or 100 tons of plywood.From this passage, it can be concluded that Arcadonia should specialize in producing plywood. Econoland has a comparative advantage in plywood. Arcadonia has an absolute advantage in the production of both crab and plywood. Econoland should specialize in producing plywood, and trade them with Arcadonia for crabs.arrow_forwardWhen a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Lamponia. Both countries produce lemons and sugar, each initially (that is, before specialization and trade) producing 12 million pounds of lemons and 6 million pounds of sugar, as indicated by grey points (star symbols) labeled point A. 12 28 24 12 Freedonia has a comparative advantage in the production of production of B (spuned to cons 4 24 advantage), the most the two countries can produce is 0 20 12 16 28 O 12 8 Note: Dashed drop lines will automatically extend to both axes. 20 0 0 PPF 24 PPF 4 Suppose that Freedonia and Lamponia specialize and open up to international trade, and the terms of trade in the world market are 1 pound of…arrow_forwardAssume that the world economy is composed of only two countries (Canada and the United States) and only two goods (steel and wheat). The table below reports the units of steel or wheat per unit of labor in Canada and in the United States Steel per Wheat per unit of labor unit of labor Canada United States 9. 3 Suppose both the US and Canada have 10 units of labor. Use the joint PPF to answer the following: If the two countries are producing 25 units of wheat, what is the opportunity cost of wheat? Hint: draw the PPF and ask what is the slope when 25 units are being produced? 2.5 2.75 3arrow_forward
- When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Sylvania. Both countries produce potatoes and tea, each initially (i.e., before specialization and trade) producing 12 million pounds of potatoes and 6 million pounds of tea, as indicated by the grey stars marked with the letter A. Freedonia Sylvania 32 32 28 28 24 PPF 24 20 20 16 16 12 12 PPF 8 8 4 4 4 8 12 16 20 24 28 32 4 8 12 16 20 24 28 32 POTATOES (Millions of pounds) POTATOES (Millions of pounds) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of Suppose that Freedonia and Sylvania specialize in the production of the goods in which each has a comparative…arrow_forwardQ2. Suppose that there are two countries (A and B) and two goods (a labor-intensive good X, textile, and a capital-intensive good Y, electronics). The two countries have identical demand for the two goods but different labor and capital endowments. Suppose (Px/Py)A < (Px/Py)B in autarky. Identify the capital-abundant country and the labor-abundant country, respectively. Use a PPF-indifference-curve graph to identify the autarky equilibrium for country B. In the same graph, show country B's gains from trade when the two countries trade at a level of Px/Py that is between the two countries' autarky price ratios. In the above graph, identify the trade triangle (including export and import quantities) for country B. What would be the effect of trade on country B's relative nominal wage rate, i.e., the ratio of nominal wage rate relative to nominal capital rental rate (w/r)? Illustrate your answer graphically. Your answer:arrow_forwardWhen a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Maldonia and Lamponia. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. (? (?) Maldonia Lamponia 64 64 56 56 48 PPF 48 40 40 32 32 24 24 PPF 16 16 16 24 32 40 48 56 64 16 24 32 40 48 56 64 LEMONS (Millions of pounds) LEMONS (Millions of pounds) Maldonia has a comparative advantage in the production of production of while Lamponia has a comparative advantage in the . Suppose that Maldonia and Lamponia specialize in the production of the goods in which each has a comparative advantage.…arrow_forward
- When a country specializes in the production of a good, this means that it can produce this good at a lower opportunity cost than its trading partner. Because of this comparative advantage, both countries benefit when they specialize and trade with each other. The following graphs show the production possibilities frontiers (PPFS) for Freedonia and Sylvania. Both countries produce lemons and sugar, each initially (i.e., before specialization and trade) producing 24 million pounds of lemons and 12 million pounds of sugar, as indicated by the grey stars marked with the letter A. SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 0 PPF 1 Freedonia 24, 12 8 16 24 32 40 48 LEMONS (Millions of pounds) 56 64 (?) SUGAR (Millions of pounds) 64 56 48 40 32 24 16 8 0 PPF 0 8 Sylvania A 16 24 32 40 48 56 64 LEMONS (Millions of pounds) (?) Freedonia has a comparative advantage in the production of while Sylvania has a comparative advantage in the production of . Suppose that Freedonia and Sylvania…arrow_forwardFreedonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea), while Desonia has a comparative advantage in the production of (grain, tea, neither grain nor tea, both grain and tea). If each fully specializes that is, produces only the good for which each has a comparative advantage, the most the two countries can produce is ( )million pounds of grain and ( )million pounds of tea. As you did for Freedonia, use the green line (triangle symbol) to plot the trading possibilities line (TPL) for Desonia. Then place the black point (plus symbol) on the trading possibilities line to indicate Desonia’s consumption after specialization and trade. True or False: Without engaging in international trade, Freedonia and Desonia would not have been able to consume at the after-trade consumption bundles. (Hint: Base your answer to this question on the answers you previously entered on this page.) a) True b) Falsearrow_forwardQ32 Consider the Production Possibility Frontiers of two countries, Australia and Brazil. Assume both have linear PPFs and the two countries both produce the same two goods: fruits and grain. Given its resources, Australia can produce either 2 units of grain per day or 1 unit of fruits; Brazil can produce either 5 units of grain or 4 units of fruits. (You may, for your own use, find it helpful to draw the Production Possibilities Frontiers for each country, though these won't be included in the answers you provide in you online responses.) a. If there were no trade, what would be the local price of fruits in each country, measured in units of grain? b. If trade is allowed, which country will export fruits and which country will export grain (if any)? c. What are the gains from trading a unit of fruit if the international price of fruit is equal to the average of the local prices in the two countries? d. How are the gains from trade distributed? Comment on why the benefits…arrow_forward
- A country may specialize in the production of a good that it can produce at a lower opportunity cost than its trading partners. Because of this comparative advantage, countries benefit when they specialize and trade with each other. The following graphs show the production possibilities curves (PPCs) for Candonia and Lamponia. Both countries produce grain and coffee, each initially (i.e., before specialization and trade) producing 12 million pounds of grain and 6 million pounds of coffee, as indicated by the grey stars marked with the letter A. 32 28 B COFFEE (Millions of pounds) 24 16 12 0 PPC 14 Candonia A 8 24 12 16 20 GRAIN (Millions of pounds) 28 32 ? COFFEE (Millions of pounds) 32 28 24 20 16 12 4 0 10 PPC 4 Lamponia A 4 11 8 12 16 20 24 GRAIN (Millions of pounds) 26 32 ?arrow_forwardAs per Ricardo, a nation has a comparative advantage in the production of a commodity in which it has Select one: a) Greater disadvantage b) Lesser disadvantage c) Greater advantage d) Lesser advantage e) Equal advantagearrow_forwardSuppose that a worker in Freedonia can produce either 6 units of corn or 4 units of wheat per year, and a worker in Sylvania can produce either 4 units of corn or 6 units of wheat per year. Each nation has 10 workers. For many years the two countries traded, each completely specializing in producing the grain for which it has a comparative advantage. Now, however, war has broken out between them and all trade has stopped. Without trade, Freedonia produces and consumes 30 units of corn and 20 units of wheat per year. Sylvania produces and consumes 20 units of corn and 30 units of wheat. By how much has the combined yearly output of the two countries declined?arrow_forward
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