Question

In: Economics

Many trading partners trade the same goods and services with one another. The U.S. exports automobiles...

Many trading partners trade the same goods and services with one another. The U.S. exports automobiles to Europe and Europe exports automobiles to the United States. In fact, that's true for food, appliances, computers and many other goods. Does intra-industry trade contradict the theory of comparative advantage? Why or why not?

Solutions

Expert Solution

Intra-industry trade doesn't contradict the theory of comparative advantage. When we study the theory of comparative advantage, we simplify the situation by taking only two goods that are produced in the trading countries and to make the constrast sharp, the two goods are usually from different industries (e.g., machinery and food).

In reality, however, there are multiple variants of the goods being produced in the same industry. Automobile industry, for instance, produces thousands of variants of vehicles. Even within cars, there are hundreds of varieties. While the US may be exporting cars that are big and spacious, it may be importing designer and muscular cars from Europe. We can analyse the imports and exports of goods belonging to the same industry on the same lines for other industries too.

There are reasons why the US is better at producting the cars it exports, and Europe better at the ones that are imported into the US. Those reasons, and the resulting comparative advantage each region / country enjoys, leads to international trade.


Related Solutions

Despite the ongoing trade war, China is one of the U.S.’s most important trading partners. (Consider...
Despite the ongoing trade war, China is one of the U.S.’s most important trading partners. (Consider how many goods are “Made in China”). What might happen to the value of the U.S. dollar, the U.S. economy, and the trade relationship between the two countries if China was experiencing unusually high inflation? Your response should be approximately 2-3 brief paragraphs.
3. Factors that influence international trade In the 1950s, imports and exports of goods and services...
3. Factors that influence international trade In the 1950s, imports and exports of goods and services constituted roughly 4% to 5% of U.S. GDP. In recent years, exports have accounted for approximately 12% of GDP, while imports have more than tripled to over 15% of GDP. Which of the following help to explain the increase in international trade and finance since the 1950s? Check all that apply. International trade agreements such as the North American Free Trade Agreement (NAFTA) Higher...
1) When U.S. net exports rise, which increases the aggregate quantity of goods and services demanded,...
1) When U.S. net exports rise, which increases the aggregate quantity of goods and services demanded, the dollar must have A. reciprocated. B. equivocated. C. depreciated D. appreciated. 2) When the price level rises less than expected, a firm with a sticky price will sell its output at a price that is A. more than the firm desires and decrease its production. B. less than the firm desires and increase its production. C. less than the firm desires and decrease...
Goods or services that are similar to one another from the consumer's perspective are known as...
Goods or services that are similar to one another from the consumer's perspective are known as a unrelated goods. b complements. c equal goods. d simulated goods. e substitutes. Which pair is an example of substitute goods? a Insecticide and umbrellas b Computers and monitors c Tennis balls and baseball bats d Coffee and sugar substitute e Coke and Pepsi Complements are goods or services that a consumers use together in some way. b are similar to one another from...
What are Canada’s leading exports? Imports? Who are Canada’s major trading partners? Is Canada Involved in...
What are Canada’s leading exports? Imports? Who are Canada’s major trading partners? Is Canada Involved in any trade agreements and/or trade organizations? Does Canada have any tariffs, quotas, or other trade restrictions?
Discuss Fiji's key merchandise exports, imports and trading partners over the last 10 years.
Discuss Fiji's key merchandise exports, imports and trading partners over the last 10 years.
If Germans purchase many additional U.S. automobiles next year, Select one: a. the supply of dollars...
If Germans purchase many additional U.S. automobiles next year, Select one: a. the supply of dollars currently in the New York currency market remains constant. b. the freely-floating euro to dollar exchange rate would become pegged c. the U.S. trade surplus next year will most certainly increase. d. the demand for dollars in the Frankfurt currency market will most likely increase
Consider a U.S.-based company that exports goods to Germany. The U.S. company expects to receive a...
Consider a U.S.-based company that exports goods to Germany. The U.S. company expects to receive a payment of €1,000,000 for the exports in one year. The U.S. company wants to hedge against a possible decline in the value of the euro that would lead to a drop in the dollar value of the euro receipt in one year. The current spot exchange rate is $1.20/€ and the one-year forward rate is $1.25/€. The annual interest rate is 5% in the...
What are the main products that the U.S. exports? Capital intensive goods. Labor intensive goods. Textiles,...
What are the main products that the U.S. exports? Capital intensive goods. Labor intensive goods. Textiles, shoes, electronics Coffee, dairy products, furniture Question When the overall trade balance is zero: Exports equal imports Net exports equal zero. There is no trade surplus or trade deficit. All of the above. Question What is the best argument in favor of free trade? Aiding infant industries. Higher consumption possibilities. All participants in international trade gain a higher standard of living. An decrease in...
Will global trade make all capitalists in the U.S. exports capital-intensive good?
Will global trade make all capitalists in the U.S. exports capital-intensive good?
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT