Previous QuizPrev Quiz
Why Everybody Trades: Comparative Advantage
Next QuizNext Quiz

International Economics Study Set 9

Business

Quiz 2 :
Why Everybody Trades: Comparative Advantage

Quiz 2 :
Why Everybody Trades: Comparative Advantage

arrow
If labor in the North is so productive, will workers in the South be overwhelmed so that free trade makes the South poorer
Free
Essay
Answer:

Answer:

Comparative advantage in trade refers to the ability of a country to be involved in economic activities for producing goods more efficiently than any other country. The principle of comparative advantage explains the concept of opportunity costs and any country will export the good having lower opportunity cost. A country will import the goods having higher opportunity cost.
The given abstract focuses on the labor and the significance of absolute advantage. The controversies on whether free trade is beneficial or not. Activists and protagonists opined that trade have bad effects on workers of developing countries, natural environment and industrial countries. It is taken as assumption that one country, called, Country N has absolute advantage on all products and other country, called, Country S have absolute disadvantage.
When it is assumed that the labor in the assumed Country N is so productive, than workers in another country, Country S is incredulous so that free trade makes Country S poorer. The Country S will have the comparative advantage in few of the set of goods. Production of these set of goods will thrive in Country S. Moreover, starting of trade will lead to the lowering of jobs producing the goods which are imported from Country N. Henceforth, the workers can move to the firms which are export-oriented.
On the other hand, there may be some transition cost borne by the workers shifting. The workers must shift from one firm to the other. Country S will gain from the trade, and it will be richer and not poorer. Workers in Country S have low wages which leads to low costs of production and the capacity to export successfully. For the products of comparative disadvantage the large productivity disadvantage is not offset by the low wages as the products are imported from Country N.

arrow
If wages in the South are so low, will workers in the North be overwhelmed so that free trade makes the North poorer
Free
Essay
Answer:

Answer:

Comparative advantage in any country relates that the country will export any service or goods with lower opportunity costs. David Ricardo's theory on international trade among countries is based on opportunity cost. Opportunity cost for producing more of any product in any country is amount of production of the other product that is given up. Adam Smith's theory on absolute advantage says that each country will export product in which the country will have highest labor productivity.
The given situation focuses on the labor as productive resource and the significance of absolute advantage considered. The country with high labor productivity will have high export capacity in international trade. The controversies in the given situation relates to the issue, whether free trade will be effective or not. It is assumed that Country N has absolute advantage on all products and Country S have absolute disadvantage.
The cost of producing any unit of product is the ratio of the rate of wage paid to the worker and the worker's productivity. The low cost of production causes wages to be low and productivity is high. In the Country S, the comparative advantage of the products for which the productivity is minimum, the lower wages cause low costs of production. Capacity to export becomes more successful. In case of the comparative disadvantage products and high productive disadvantage will not be upset by the lower wages. These products can be imported from Country N.
In Country N there is comparative advantage in the group of products as in these products the productivity of absolute advantage is the highest. Although there is high wage, the cost of producing the products is low as the workers are very productive. Country N can export products as high productivity causes low production costs. Through the use of comparative advantage and maximizing the productivity of absolute advantage, Country N will loose from trade and will become poorer.
Workers in Country S have low wages. When the wages in the Country S are so low, then will the workers in Country N be overwhelmed, so that free trade makes the Country N poorer.

arrow
"For my country, imports are the good thing about international trade, whereas exports are more like the necessary evil." Do you agree or disagree Why
Free
Essay
Answer:

Answer:

No, the given statement cannot be agreed upon.
Imports refer to buying foreign goods and services by making payments for them while exports refer to selling domestic goods in foreign markets in exchange for money. This means that imports are a type of leakage for the economy as it leads to outflow of money from the economy and exports are a type of injection for the economy as it leads to inflow of money to the economy.
This means that exports will increase the GDP while imports will reduce the GDP. Hence, it can be said that imports are an evil while exports are the good thing about international trade.
This makes the given statement false.

arrow
Does trade lead to harm to and exploitation of workers in the South, as indicated by the low wages (and/or poor working conditions)
Essay
Answer:
arrow
Consider the two economies shown in Figure 3.1. When there is free trade, are we sure that each country should specialize completely in producing only one of the products For instance, perhaps each country should shift along its production possibility curve only about halfway from the no-trade production point S0 to the intercept point S1. If the countries still trade with each other at the relative price of 1 W/C , would produc­ing at the halfway point be better or worse for each country (compared to completely specializing at point S1 )
Essay
Answer:
arrow
Again, consider the numerical example that we used to demonstrate the thinking of Adam Smith (page 36). When these countries open to free trade, is it possible that the free-trade equilibrium world relative price of cloth iS1.5 W/C
Essay
Answer:
arrow
Consider another Ricardian example, using standard Ricardian assumptions: img Vintland has 30 million hours of labor in total per year. Moonited Republic haS20 million hours of labor per year. a. Which country has an absolute advantage in wine In cheese b. Which country has a comparative advantage in wine In cheese c. Graph each country's production-possibility curve. Show the no-trade production point for each country, assuming that with no trade, Vintland consumeS1.5 million kilos of cheese and Moonited Republic consumes 3 million kilos of cheese. d. When trade is opened, which country exports which good If the equilibrium international price ratio is ½ bottle of wine per kilo of cheese, what happens to production in each country e. In this free-trade equilibrium, 2 million kilos of cheese anD1 million bottles of wine are traded. What is the consumption point in each country with free trade Show this graphically. f. Does each country gain from trade Explain, referring to your graphs as is appropriate.
Essay
Answer:
arrow
In your answer to this question, use the numerical example from the section on Ricardo's theory of comparative advantage. What is the effect on the pattern of trade predicted by the Ricardian analysis if the number of labor hours required to make a unit of wheat in the United States is reduced by half (that is, if its productivity doubles) Now return to the initial numbers. What is the effect on the pattern of trade if instead the number of hours required to make a unit of cloth in the United States is reduced by half (productivity doubles)
Essay
Answer: