View the following video then answer the questions below Comparative Advantage a
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Question
View the following video then answer the questions below Comparative Advantage and International Trade Discussion Questions 1) Explain how the United States, being a large economy with an abundance of natural resources, labor, and capital, can benefit by not being in autarky. 2) It was shown in the video that the United States had the comparative advantage in burgers. Using the table below, show and explain how Mexico has the comparative advantage in phones. Mexico United States Possibility Burgers Phones Burgers Phones 6 12 0 8 16 24 0 8 16 24 4 8 0 0Explanation / Answer
Answer:
(1) The US actually benefits by being in autarky. The reason is that the US can keep its natural resources to itself thus leading to greater innovation as it doesn’t have to worry about outside influences or countries trying to maintain or obtain any competitive advantages.
Answer:
(2)The U.S. had a higher opportunity cost in producing burgers: 2 phones were given up for every 1 burger produced compared to Mexico giving up 4 phones for every 1 burger produced. This higher opportunity cost in phone production gives Mexico the comparative advantage in phones.
Answer:
(3)The U.S. must give up 1/4 a burger for every phone produced. Mexico must give up 1/2 of a burger for every phone produced. An agreeable terms of trade for 1 phone will be 1 burger.
Answer:
(4)Mexico faced a domestic phone price of $100. The world price for phones was $250. This means that the US will export phones as they can take advantage of the higher price.
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(5)Mexico’s price will need to be $17.85 and the world price will need to be $7.14.
Answer:
(6) tariffs are a tax on imports. If a tariff is imposed then burger imports rise as Mexico finds it more advantageous to import burgers. This helps consumers as they now receive more burgers.
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