Chapter 2 (Core Chapter) Comparative Advantage

Salvatores Introduction to International Economics, 2 nd Edition
Instructors Manual
*CHAPTER 2
(Core Chapter)
COMPARATIVE ADVANTAGE
ANSWERS TO REVIEW QUESTIONS AND PROBLEMS
1.
The mercantilists believed that the way for a nation to become rich and powerful was to
export more than it imported. The resulting export surplus would then be settled by an
inflow of gold and silver and the more gold and silver a nation had, the richer and more
powerful it was. Thus, the government had to do all in its power to stimulate the nations
exports and discourage and restrict imports. However, since all nations could not
simultaneously have an export surplus and the amount of gold and silver was fixed at any
particular point in time, one nation could gain only at the expense of other nations. The
mercantilists thus preached economic nationalism, believing that national interests were
basically in conflict.
Adam Smith, on the other hand, believed that free trade would make all nations
better off.
All of this is relevant today because many of the arguments made in favor of
restricting international trade to protect domestic jobs are very similar to the mercantilists
arguments made three or four centuries ago. That is why we can say that mercantilism is
alive and well in the twenty-first century. Thus we have to be prepared to answer and
demonstrate that these arguments are basically wrong.
2.
According to Adam Smith, the basis for trade was absolute advantage, or one country being
more productive or efficient in the production of some commodities and other countries
being more productive in the production of other commodities.
The gains from trade arise as each country specialized in the production of the
commodities in which it had an absolute advantage and importing those commodities in
which the nation had an absolute disadvantage.
Adam Smith believed in free trade and laissez-faire, or as little government
interference with the economic system as possible. There were to be only a few exceptions
to this policy of laissez-faire and free trade. One of these was the protection of industries
important for national defense.
3.
Ricardos law of comparative advantage is superior to Smiths theory of absolute advantage

in that it showed that even if a nation is less efficient than or has an absolute disadvantage in
the production of all commodities with respect to the other nations, there is still a basis for
beneficial trade for all nations.
The gains from trade arise from the increased production of all commodities that
arises when each country specializes in the production of and exports the commodities
of its comparative advantage and imports the other commodities.
A nation that is less efficient than others will be able to export the commodities of its
comparative advantage by having its wages and other costs sufficiently lower than in other
nations so as to make the commodities of its comparative advantage cheaper in terms of the
same currency with respect to the other nations.
Copyright 2010 John Wiley & Sons, Inc.
Instructors Manual
4.
a. In case A, the United States has an absolute and a comparative advantage in wheat and
the United Kingdom in cloth. In case B, the United States has an absolute advantage (so that
the United Kingdom has an absolute disadvantage) in both commodities. In case C, the
United States has an absolute advantage in wheat but has neither an absolute advantage nor
disadvantage in cloth. In case D, the United States has an absolute advantage over the
United Kingdom in both commodities.
b. In case A, the United States has a comparative advantage in wheat and the United
Kingdom in cloth. In case B, the United States has a comparative advantage in wheat and the
United Kingdom in cloth. In case C, the United States has a comparative advantage in wheat
and the United Kingdom in cloth. In case D, the United States and the United Kingdom have
a comparative advantage in neither commodities.
5.
a.
b.
c.
d.
6.
a. The cost in terms of labor content of producing wheat is 1/4 in the United States and 1 in
the United Kingdom, while the cost in terms of labor content of producing cloth is 1/3 in the
United States and 1/2 in the United Kingdom.
b. In the United States, Pw=$1.50 and Pc=$2.00.
c. In the United Kingdom, Pw=1.00 and Pc=0.50.
7.
The United States has a comparative disadvantage in the production of textiles. Restricting
textile imports would keep U.S. workers from eventually moving into industries in which the
United States has a comparative advantage and in which wages are higher.
8.
Ricardos explanation of the law of comparative is unacceptable because it is based on the

labor theory of value, which is not an acceptable theory of value.
The explanation of the law of comparative advantage can be based on the opportunity
cost doctrine, which is an acceptable theory of value.
9.
The production possibilities frontier reflects the opportunity costs of producing both
commodities in the nation.
The production possibilities frontier under constant costs is a (negatively sloped)
straight line.
The absolute slope of the production possibilities frontier reflects or gives the price of
the commodity plotted along the horizontal axis in relation to the commodity plotted along the
vertical axis.
10.
a. See Figure 1.1.
The United States gains 1C.

The United Kingdom gains 4C.
3C < 4W < 8C.
The United States would gain 3C while the United Kingdom would gain 2C.
Instructors Manual
b. In the United States Pw/Pc=3/4, while in the United Kingdom, Pw/Pc=2.

c. In the United States Pc/Pw=4/3, while in the United Kingdom Pc/Pw=1/2.
d. See Figure 1.2.
The autarky points are A and A' in the United States and the United Kingdom,
respectively.
The points of production with trade are B and B' in the United States and the United
Kingdom, respectively.
The points of consumption are E and E' in the United States and the United Kingdom,
respectively. The gains from trade are shown by E > A for the U.S. and E' > A' for the U.K.
Instructors Manual

1.
2.
3.
a. Increasing opportunity costs arise because resources or factors of production are not
homogeneous (i.e., all units of the same factor are not identical or of the same quality) and
not used in the same fixed proportion or intensity in the production of all commodities.
This means that as the nation produces more of a commodity; it must utilize resources that
become progressively less efficient or less suited for the production of that commodity. As a
result, the nation must give up more and more of the second commodity to release just
enough resources to produce each additional unit of the first commodity (i.e., it faces
increasing costs).
b. In the real world, the production frontiers of different nations will usually differ because
of differences in factor endowments and technology.
a. See Figure 3.1.
b. The slope of the transformation
curve increases as the nation
produces more of X and decreases
as the nation produces more of Y.
These reflect increasing
opportunity costs as the nation
produces more of X or Y.
a. See Figures 3.2a and 3.2b.
b. Nation 1 has a comparative advantage in X and Nation 2 in Y.

c. If the relative commodity price line in autarky has equal slope in both nations. This is rare.
4.
a. See Figures 3.3a and 3.3 b. Points B and B are the production points in Nations 1 and 2,
respectively, with specialization and trade and E and E are the consumption points.
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Instructors Manual
b. Nation 1 gains by the amount by which community indifference curve III (point E) is
above indifference curve I (point A). Nation 2 gains to the extent that community indifference
curve III (point E) is above indifference curve I (point A).
5.
a. The equilibrium-relative commodity price in isolation is the relative price that prevails
in the nation without trade or in autarky.
b. The equilibrium-relative commodity price in isolation for the commodity plotted along
the horizontal axis is given by the (absolute) slope of the tangent of the production frontier
and the community indifference curve at the point of production and consumption in the
nation in isolation.
c. The nation with the lower equilibrium relative commodity price in isolation or autarky
has a comparative advantage in the commodity measured along the commodity axis and a
comparative disadvantage in the commodity measured along the vertical axis.
6.
a. Nation 1 is better off at point E than at point A because point E is on higher community
indifference curve III than at point A, which is on lower community indifference curve I.
b. Nation 1 consumes less of commodity Y at point E (40Y) than at point A (60Y) because
PY/PX is much higher at point E (PB =1) than at point A (PA =1/4, the inverse of PX/PY=4).
7.
a. The reason for incomplete specialization under increasing costs is that as each nation
specializes in the production of the commodity of its comparative advantage, the relative
commodity price in each nation moves toward each other (i.e., become less unequal) until
they are identical in both nations. At that point, it does not pay for either nation to continue
to expand the production of the commodity of its initial comparative advantage. This occurs
before either nation has completely specialized in production.
b. Under constant costs, each nation specializes completely in production of the
commodity of its comparative advantage (i.e., produces only that commodity). The reason
is that since it pays for the nation to obtain some of the commodity of its comparative
disadvantage from the other nation, then it pays for the nation to get all of the commodity
of its comparative disadvantage from the other nation (i.e., to specialize completely in the
production of the commodity of its comparative advantage).
8.
See Figure 3.5 (Please disregard Figure 3.4, which shows how to derive the demand and
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Instructors Manual
supply curve for commodity X for Nation 1 and Nation 2 that are used to show how the
equilibrium relative commodity price is determined with trade a topic that is covered in
Appendix A3.1.
Nations 1 and 2 have identical production frontiers (shown by a single curve) but different
tastes (indifference curves). In isolation, Nation 1 produces and consumes at point A and
Nation 2 at point A. Since PA < PA, Nation 1 has a comparative advantage in X and Nation
2 in Y.
With trade, Nation 1 specializes in the production of X and produces at B, while Nation 2
specializes in Y and produces at B (which coincides with B). By exchanging BC = CE of
X for CE = CB of Y with each other (see trade triangles BCE and BCE), Nation 1 ends
up consuming at E on indifference curve III (higher than indifference curve I at point A) and
Nation 2 consumes at on indifference curve III (higher than indifference curve I at point
A).
9.
a. If the terms of trade of a nation improved from 100 to 110 over a given period of time, the
terms of trade of the trade partner would deteriorate by about 9 percent over the same period of
time [(100-110)/110 = -0.09 =0.9%].
b. A deterioration in the terms of trade of the trade partner can be said to be unfavorable to the
trade partner because the trade partner must pay a higher price for its imports in terms of its
exports.
c. This does not necessarily mean that the welfare of the trade partner has decreased because
the deterioration in its terms of trade may have resulted from an increase in productivity that
is shared with the other nation.
10.
It is true that Mexico's wages are much lower than U.S. wages (they are about one fifth of the
average wage in the United States), but labor productivity is much higher in the United States
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Instructors Manual
and so labor costs are not necessarily higher than in Mexico. In any event, trade can still be
based on comparative advantage.
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Instructors Manual
*CHAPTER 4
(Core Chapter)
THE HECKSCHER-OHLIN AND OTHER TRADE THEORIES
1.
a. The HeckscherOhlin (H-0) theorem postulates that a nation will export those
commodities whose production requires the intensive use of the nations relatively
abundant and cheap factor and import the commodities whose production requires the
intensive use of the nations relatively scarce and expensive factor. In short, the relatively
labor-rich nation exports relatively labor-intensive commodities and imports the relatively
capital-intensive commodities.
b. Heckscher and Ohlin identify the relative difference in factor endowments among
nations as the basic determinant of comparative advantage and international trade.
c. The H-O Theory represents an extension of the standard trade model because it
explains the basis for comparative advantage (classical economists, such as Ricardo had
assumed it) and examines the effect of international trade on factor prices and income
distribution (which classical economists had left unanswered).
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2.
Instructors Manual
See Figure 4.1.
3.
a. The factorprice equalization theorem postulates that international trade will bring
about the equalization of the returns to homogeneous or identical factors across nations.
b. The Stopler-Samuelson theorem postulates that free international trade reduces the real
income of the nations relatively scarce factor and increases the real income of the nations
relatively abundant factor.
c. The specific-factors model postulates that the opening of trade (1) benefits the specific
factor used in the production of the nations export commodity, (2) harms the specific factor
used in the production of the nations import-competing industry, and (3) leads to an
ambiguous effect (i.e., it may benefit or harm) the mobile factor.
d. Trade acts as a substitute for the international mobility of factors of production in its
effect on factor prices. With perfect mobility, labor would migrate from the low-wage
nation to the high-wage nation until wages in the two nations are equalized. Similarly,
capital would move from the low-interest to the high-interest nation until the rate of
interest was equalized in the two nations.
4.
a. The Leontief paradox refers to the original Leontiefs finding that U.S. import
substitutes were more K-intensive than U.S. exports. This was the opposite of what the H-O
theorem postulated.
b. The Leontief paradox was resolved by including human capital into the calculations
and excluding industries based on natural resources. Recent research using data on many
sectors, for many countries, over many years, and considering that countries could
specialize in a particular subset or group of commodities that were best suited to their
specific factor endowments, provides strong support for the H-O theorem.
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Instructors Manual
c. The Hecksher-Olhin theory remains the centerpiece of modern trade theory for explaining
international trade today. To be sure, there are other forces (such as economies of scale,
product differentiation, and technological differences across countries) that provide additional
reasons and explanations for some international trade not explained by the basic H-O model.
These other trade theories complement the basic H-O model in explaining the pattern of
international trade in the world today.
5.
International trade with developing economies, especially newly industrializing economies

(NIEs), contributed in two ways to increased wage inequalities between skilled and unskilled
workers in the United States during the past two decades. Directly, by reducing the demand
for unskilled workers as a result of increased U.S. imports of labor-intensive manufactures
and, indirectly, by speeding up the introduction of labor-saving innovations, which further
reduced the U.S. demand for unskilled workers. International trade, however, was only a
small cause of increased wage inequalities in the United States. The most important cause
was technological change.
6.
a. Economies of scale refer to the production situation where output grows proportionately
more than the increase in inputs or factors of production. For example, output may more
than double with a doubling of inputs.
b. Even if two nations were identical in every respect, there is still a basis for mutually
beneficial trade based on economies of scale. When each nation specializes in the
production of one commodity, the combined total world output of both commodities will be
greater than without specialization when economies of scale are present. With trade, each
nation then shares in these gains.
c. The new international economies of scale refers to the increase in productivity resulting
from firms purchasing parts and components from nations where they are made cheaper and
better, and by establishing production facilities abroad.
7.
a. Product differentiation refers to products that are similar, but not identical.
Intra-industry trade refers to trade in differentiated products, as opposed to inter-industry
trade in completely different products.
b. Intra-industry trade arises in order to take advantage of important economies of scale in
production. That is, with intra-industry trade each firm or plant in industrial countries can
specialize in the production of only one, or at most a few, varieties and styles of the same
product rather than many different varieties and styles of a product and achieve economies
of scale.
c. With few varieties and styles, more specialized and faster machinery can be developed
for a continuous operation and a longer production run. The nation then imports other
varieties and styles from other nations. Intra-industry trade benefits consumers because of
the wider range of choices (i.e., the greater variety of differentiated products) available at
the lower prices made possible by economies of scale in production.
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Instructors Manual
*CHAPTER 5
(Core Chapter)
TRADE RESTRICTIONS: TARIFFS
1.
a. See Figure 5.1.

b. Consumption is 70X, production is 50X and imports are 20X.
c. The consumption effect is 30X, the production effect is +30X, the trade effect is 60X,
and the revenue effect is $30 (see Figure 5.1).
2.
a. The consumer surplus is $250 without and $l22.50 with the tariff (see Figure 5.1).
b. Of the increase in the revenue of producers with the tariff (as compared with their
revenues under free trade), $22.50 represents the increase in production costs and another
$22.50 represents the increase in rent or producer surplus (see Figure 5.1).
c. The dollar value or the protection cost of the tariff is $45 (see Figure 5.1).
3.
The dollar value or the protection cost of the tariff is $45 (see Figure 5.2).
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Instructors Manual
4.
The dollar value or the protection cost of the tariff is $45 (see Figure 5.3).
5.
The optimum tariff is the tariff that maximizes the net benefit resulting from the
improvement in the nations terms of trade against the negative effect resulting from
reduction in the volume of trade.
6.
a. When a nation imposes an optimum tariff, the trade partners welfare declines because
of the lower volume of trade and the deterioration in its terms of trade.
b. The trade partner is likely to retaliate and in the end both nations are likely to lose
because of the reduction in the volume of trade.
7.
Even when the trade partner does not retaliate when one nation imposes the optimum tariff,
the gains of the tariff-imposing nation are less than the losses of the trade partner, so that
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Instructors Manual
the world as a whole is worse off than under free trade. It is in this sense that free trade
maximizes world welfare.
8.
a. The nominal tariff is calculated on the market price of the product or service. The rate
of effective protection, on the other hand, is calculated on the value added in the nation. It
is equal to the value of the price of the commodity or service minus the value of the
imported inputs used in the production of the commodity or service.
b. The nominal tariff is important to consumers because it determines by how much the
price of the imported commodity increases. The rate of effective protection is important for
domestic producers because it determines the actual rate of protection provided by the
tariff to domestic processing.
9.
a. Rates of effective protection in industrial nations are generally much higher than the
corresponding nominal rates and increase with the degree of processing.
b. The tariff structure of developed nations is of great concern for developing nations
because it discourages manufacturing production in developing nations.
10.
If a nation reduces the nominal tariff on the importation of the raw materials required to
produce a commodity but does not reduce the tariff on the importation of the final
commodity produced with the imported raw material, then the effective tariff rates will
increase relative to the nominal tariff rate on the commodity.
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Instructors Manual
*CHAPTER 6
(Core Chapter)
NONTARIFF TRADE BARRIERS AND
THE POLITICAL ECONOMY OF PROTECTIONISM
1.
a. An import quota will increase the price of the product to domestic consumers, reduce
the domestic consumption of the good, increase domestic production, and result in a
protection or deadweight loss to the economy.
b. The effects of an import quota are identical to those of an equivalent import tariff,
except that with a quota the government does not collect a tariff revenue (unless it auctions
off import quotas to the highest bidder). The import quota is also more restrictive than an
equivalent import tariff because foreign producers cannot increase their exports by
lowering their prices.
2.
By penciling in DX in Figure 1, we can see that the effects of the import quota are:
Px=$2.00 and consumption is 60X, of which 40X are produced domestically and 20X are
imported; by auctioning off import licenses, the revenue effect would be $20.
3.
The effects of an export quota of 20X are identical to those of an import quota of 20X or a
100 percent import tariff on commodity X, except that the revenue effect is collected by the
exporters, rather than by the domestic importers or their government.
7.
a. The infant-industry argument postulates that temporary protection may be justified in

order to allow a developing nation to develop an industry in which it has a potential
comparative advantage. Temporary trade protection is then justified to establish and protect
the domestic industry during its infancy until it can grow and meet foreign competition.
For this argument to be valid, however, protection must be temporary and the return in the
grown-up industry must be sufficiently high to also offset the higher prices paid by
domestic consumers of the commodity during the period of infancy.
b. The infant-industry argument must be qualified in several important ways to be
acceptable. First, this argument is more justified for developing nations (where capital
markets may not function properly) than for industrial nations. Second, it is usually
difficult to identify which industry or potential industry qualifies for this treatment, and
experience has shown that protection, once given, is difficult to remove. Third, and most
important, what trade protection (say in the form of an import tariff) can do, an equivalent
production subsidy to the infant industry can do better.
8.
a. According to strategic industrial trade policy a nation can create a comparative

advantage (through temporary trade protection, subsidies, tax benefits, and cooperative
governmentindustry programs) in a high-technology field deemed crucial to future growth
in the nation.
b. There are also serious difficulties in carrying strategic industrial and trade policies.
First, it is extremely difficult to pick winners (i.e., choose the industries that will contribute
significantly to growth in the future). Second, if most leading nations undertake strategic
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Instructors Manual
trade policies at the same time, their efforts are largely neutralized. Third, when a country
does achieve substantial success with a strategic trade policy, this comes at the expense of
other countries (i.e., it is a beggar-thy-neighbor policy), which are, therefore, likely to
retaliate. Faced with all these practical difficulties, even supporters of strategic trade policy
grudgingly acknowledge that free trade is still the best policy, after all.
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Instructors Manual
*CHAPTER 7
(Core Chapter)
ECONOMIC INTEGRATION
1.
If Nation A imposes a 100 percent ad valorem tariff on imports of commodity X from

Nation B and Nation C, Nation A will produce commodity X domestically because the
domestic price of commodity X is $10 as compared with the tariff-inclusive price of $16 if
Nation A imported commodity X from Nation B and $12 if Nation A imported commodity
X from nation C.
2.
a. If Nation A forms a customs union with Nation B, Nation A will import commodity X
from Nation B at the price of $8 instead of producing it itself at $10 or importing it from
Nation C at the tariff-inclusive price of $12.
b. The formation by Nation A of a customs union with Nation B leads to trade creation
only because Nation A replaces the domestic production of commodity X at Px=$10 with
tariff-free imports of commodity X from Nation B at Px=$8.
3.
If Nation A imposes a 50 percent ad valorem tariff on imports of commodity X from

Nation B and Nation C, Nation A will import commodity X from nation C at the
tariff-inclusive price of $9 instead of producing commodity X itself or importing it from
Nation B at the tariff-inclusive price of $12.
4.
a. If Nation A forms a customs union with Nation B, Nation A will import commodity X
from Nation B at the price of $8 instead of importing it from Nation C at the tariff-inclusive
price of $9.
b. The formation by Nation A of a customs union with Nation B leads not only to trade
creation but also to trade diversion because it replaces lower-cost imports of commodity X
of $6 (from the point of view of Nation A as a whole) with higher priced imports of
Commodity X from Nation B at $8.
Specifically, Nation A's importers do not import commodity X from Nation C
because the tariff-inclusive price of commodity X from Nation C is $9 as compared with
the no-tariff price of $8 for imports of commodity X from Nation B. However, since the
government of Nation A collects the $3 tariff per unit on imports of commodity X from
Nation C, the net effective price for imports of commodity X from Nation C is really $6 for
Nation A as a whole.
5.
a. See Figure 7.1.
22
6.
7.
8.
Instructors Manual
b. The net gain from the trade-diverting customs union shown in Figure 1 is given by
C'JJ'+B'HH'-MJ'H'N. As contrasted with the case in Figure 7-1 in the text, however, the
sum of the areas of the two triangles (measuring gains) is here greater than the area the
rectangle (measuring the loss). Thus, the nation would now gain from the formation of a
custom union. Had we drawn the figure on graph paper, we would have been able to
measure the net gain in monetary terms also.
A customs union that leads to both trade creation and trade diversion is more likely to lead
to a net positive welfare gain of the nation joining the union (1) the smaller is the relative
inefficiency of the union member in relation to the non-union member and (2) the higher is
the level of the tariff imposed by the customs union on the non-union member.
The dynamic benefits resulting from the formation of a customs union are (1) increased
competition, (2) economies of scale, (3) stimulus to investment, and (4) better utilization of
economic resources. These are likely to be much more significant than the static benefits.
See Figure 7.2. The formation of the customs union has no effect.
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Instructors Manual
CHAPTER 8
GROWTH AND DEVELOPMENT WITH INTERNATIONAL TRADE
2.
a. See Figure 8.1.
b. See the top solid production frontier in Figure 8.2.
c. See the dashed production frontier in Figure 8.3.
4.
See Figure 8.5.
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5.
Instructors Manual
7.
An improvement in the technology of primary production is likely to lead to deterioration in

the terms of trade as the developing nation exports more primary commodities.
a. The nation's commodity terms of trade would be 91.7.
b. The nation's income terms of trade would be 119.2.
c. The nation is better off in 2003 than it was in 1980 because of its greater ability to
import goods and services.
a. Immiserizing growth can take place if the supply curve of the factor used in the nations
export commodity increases so much as to cause such a large deterioration in the nations
terms of trade (as the nation tries to export more of its commodity) that the nation reaches a
lower indifference curve after growth than before growth.
b. Immiserizing growth occurred rarely in the real world because the deterioration in the
nations terms of trade is more than neutralized by increase in the volume of the nations
exports (so that the nations terms of trade improve).
8.
See Figure 8.6.
6.
25

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Salvatores Introduction to International Economics, 2 nd Edition

Ricardos law of comparative advantage is superior to Smiths theory of absolute advantage

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Ricardos explanation of the law of comparative is unacceptable because it is based on the

a. See Figure 1.1.

The United States gains 1C.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

b. In the United States Pw/Pc=3/4, while in the United Kingdom, Pw/Pc=2.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

ANSWERS TO REVIEW QUESTIONS AND PROBLEMS

b. Nation 1 has a comparative advantage in X and Nation 2 in Y.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

See Figure 4.1.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

International trade with developing economies, especially newly industrializing economies

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

a. See Figure 5.1.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

a. The infant-industry argument postulates that temporary protection may be justified in

a. According to strategic industrial trade policy a nation can create a comparative

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

If Nation A imposes a 100 percent ad valorem tariff on imports of commodity X from

If Nation A imposes a 50 percent ad valorem tariff on imports of commodity X from

a. See Figure 7.1.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

a. See Figure 8.1.

b. See the top solid production frontier in Figure 8.2.

c. See the dashed production frontier in Figure 8.3.

See Figure 8.5.

Copyright 2010 John Wiley & Sons, Inc.

Salvatores Introduction to International Economics, 2 nd Edition

An improvement in the technology of primary production is likely to lead to deterioration in

See Figure 8.6.

Copyright 2010 John Wiley & Sons, Inc.