ECON 2610 Lecture Notes - Lecture 2: Bundesautobahn 60, Comparative Advantage, Exchange Rate

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purplecicada511

4 Feb 2017

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The only thing that matters is the domestic terms of trade (dtot) must be different. If a country is dominant in both, such as below, canada will still have an advantage in cloth (because the difference is less) If one nation could produce absolutely larger quantities of all goods with a given amount of labor than could another nation, free trade could still be beneficial if the degree of relative advantage of the nation varied across goods. A nation will be able to obtain gains from exporting a product even if the nation has an absolute disadvantage in the production of all goods. The nation will have a comparative advantage and will export that product in which its absolute disadvantage is least. Mexico has an advantage in both goods. The disadvantage in cloth is less for canada, so they have a comparative advantage in cloth. Cloth is cheaper to produce in mexico.

Related Questions

If labor in Mexico is less productive than labor in the United States in all areas of production:

a. then neither nation can benefit from trade.

b. then Mexico can benefit from trade but the United States cannot.

c. then the United States will have a comparative advantage relative to Mexico in the production of all goods.

d. then both Mexico and the United States still can benefit from trade.

bronzespider662

If a country is absolutely more efficient than any other country in producing everything, then it would:

A. simply export goods and services and import money

B. not trade with others because there would be no benefit in doing so

C. still benefit that nation to specialize and trade those goods in which it possesses a comparative advantage

D. make it unnecessary for other nations to produce anything for themselves

E. represent a refutation of the concept of comparative advantage

marooncat177

7) If Nation 1 has an absolute disadvantage in the production of fur hats and shoes when compared to Nation 2, it is still possible that Nation 2 can move resources into the production of shoes and trade for fur hats imported from N1 and thereby make consumers in both nations better off if:

(Select 1) multiple choice

Shoes imported from Nation 2 require that relatively fewer fur hats be produced than would be the case in Nation 1.

Nation 2 can make fur hats by giving up relatively fewer shoes than Nation 1.

Nation 1 can make a fur hat by giving up the same number of shoes as in Nation 2.

In Nation 1, the relative price of shoes to fur hats is higher than it is in Nation 2, thus giving Nation 1 an incentive to import shoes from Nation 2 in exchange for relatively cheaper fur hats exported to N2.

In Nation 2, the relative price of shoes to fur hats is higher than in Nation 1, thus giving Nation 2 an incentive to export over priced shoes to Nation 1 in exchange for fur hats that cost about the same.

ECON 2610 Lecture Notes - Lecture 2: Bundesautobahn 60, Comparative Advantage, Exchange Rate

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