While different natural resources and the theory of comparative advantage can ex
ID: 2810215 • Letter: W
Question
While different natural resources and the theory of comparative advantage can explain many trade patterns, they cannot explain all types of trade that economists observe Consider each scenario in the following table and determine which theory best explains the trade pattern described Product Life Dynamic Intra- Industry Comparative Cycle Scenario Ice wine is a special spirit that can only be made during a few months in the winter. The nations of Fruzenton and Grappovia are in different hemispheres, and each produces ice wine. During each nation's winter, its ice wine industry produces enough to meet domestic demand and export to the other country. The ice wine exchanged between the two nations is nearly identical Advantage Theory Specialization For many years, microchip firms in the nation of Tablon have struggled with high production costs compared to firms in the nation of Ghovia, because Tablon's soldering tools are outdated, forcing workers to work slowly. As a result, most microchips are made in Ghovia and exported. An inventor employed by a firm in Tablon comes up with a new way to solder chips that makes workers 40% more efficient. This innovation reduces costs and allows the firms in Tablon to take over the microchip market. In response, firms in Ghovia start to research how they can update their factories to be more cost effective In the nation of Pescovia, the fishing industry has suffered when trying to compete internationally because many of the Pescovians who are capable of fishing successfully chose to pursue more stable jobs as computer programmers. The Pescovian government passed a law to grant full health insurance to all Pescovian fisherfolk. In response, many of the skilled Pescovians chose to abandon their jobs programming and began to fish. As the fishing industry grew, thanks to an influx of skilled fisherfolks, Pescovia became a major international exporter of fish Grade It Now Save & Continue Continue without savingExplanation / Answer
1. Intra industry specialization
Since both are in the same industry (beverage - wine), they enjoy their specializations of being in different hemispheres and satifying the demands of both places through domestic production and export . Since the products are identical, the market for both is well received by customers.
2.Dynamic Compoarative Advantage
Dynamic comparative advantage is the advantage that changes over a period of time. Though Ghovia had a comparative advantage over Tablon in the microchip business earlier, that advantage changedover time with the inventor reducing the costs and Ghovia having to revamo their business model
3.Product life cycle
Product has 4 stages - introducion, growth , maturity and decline. Business' must strive to introduce or innovate products before entering the decline stage. Since the fishing was entering the decline stage, the government introduced healthcare which resulted in more people moving to fishing and it becoming a large exporter and again entering the growth stage
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.