Consider alternative theories of intra-industry trade. a) Name any one which arises from the violation of an H-O assumption. b) Which assumption does it violate? c) Give a real-world example of trade...

Consider alternative theories of intra-industry trade.

a) Name any one which arises from the violation of an H-O assumption.

b) Which assumption does it violate?

c) Give a real-world example of trade which is explained by the theory you selected.

8.How is it possible that free trade can allow a county to consume more than it can produce? If every country consumed more than it could produce, then global consumption would exceed global production. How could this be?

2. If France can produce either 20 wines or 10 chocolates with a resource unit and Germany can produce 30 wines or 10 chocolates with a resource unit, then:

a) Which country has the absolute advantage in wine? In chocolate?

b) Which country has the comparative advantage in wine? In chocolate?

c) Which country will export chocolate for wine?

d) What is the upper and lower limits for the price of chocolate in terms of wine?

3. Country A has 40 units of labor and 90 units of capital. Country B has20 units of labor and 40 units of capital. Product X is labor-intensive and Product Y is capital-intensive.

a) Which country is capital abundant?

b) Which country should export Product X?

c) What will happen to the relative returns to labor and capital in Country B in the short-run? In the long run?

d) What will happen to the return to labor between Country A and Country B over time?

Answered Same DayDec 26, 2021

Answer To: Consider alternative theories of intra-industry trade. a) Name any one which arises from the...

Robert answered on Dec 26 2021

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Question 1
a) New Trade Theory is the underlying theory that arises from the violation of the H-O
theorem.
b) The assumption of H-O that is violated is that production output tends to deliver
constant returns to scale which is not true as generally there would be increasing
returns to scale. Since the above assumption is not true, hence the New Trade Theory
forms basis in the same argument.
c) The application of this theory can be viewed along with protectionism which has
essentially led to gain in size of various industries in different countries. For instance,
the auto industry in Japan is the result of the protectionism provided by the
government which in the long run led to the emergence of a globally competitive auto
industry flourishing with increasing returns to scale and export to various foreign
nations on being cost efficient due to the sheer scale assumed.
Question 2
a) Germany has absolute advantage is case of wine as it can produce higher amount of
wine per unit resource. With regards to chocolate,...

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Consider alternative theories of intra-industry trade. a) Name any one which arises from the violation of an H-O assumption. b) Which assumption does it violate? c) Give a real-world example of trade...

Answer To: Consider alternative theories of intra-industry trade. a) Name any one which arises from the...

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