Atlemata 7. Transportation costs and comparative advantage The following graph shows a fictional world economy that consists of only two countries, Greenberg and Baxton. Both countries produce cars under increasing-cest conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore the supply and demand curves slope in directions opposite their usual directions. Greenberg Busion 0 8 PRICE OF CARS (Thousands of dolara 1 D. 10 9 8 7 6 5 4 3 2 1 1 2 3 4SBT8 9 10 CARS In the absence of trade that is, autarky), the equilibrium price in Greenberg is s and the equilibrium price in Baxton is (Hint: Enter all monetary values in full. For example, $7,000 rather than $7.) In the absence of trade, which of the following statements is correct? O Greenberg and Barton are equally good at producing cars. O Greenberg has a comparative advantage in the production of cars. O Greenberg has the comparative disadvantage in production of cars. Now suppose both countries open up to international trade with each other. For each country, use the previous graph to compute the qualizing price, consumption and production at that price, and the quantity of exports and imports when there are no transportation costs. Enter these amounts into the first two rows of the following table. Equalizing Price Consumption at Equalizing Price Production at Equalizing Price Exports Imports (Dollars) (Cara) (Cars) (Cars) (Cars) Without Transportation Costs Greenberg Baxton With Transportation Costs Greenberg Baxton II II II II Now suppose that the per-unit cost of transporting a car between Greenberg and Baxton is $2,000. Atlemata 7. Transportation costs and comparative advantage The following graph shows a fictional world economy that consists of only two countries, Greenberg and Baxton. Both countries produce cars under increasing-cest conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore the supply and demand curves slope in directions opposite their usual directions. Greenberg Busion 0 8 PRICE OF CARS (Thousands of dolara 1 D. 10 9 8 7 6 5 4 3 2 1 1 2 3 4SBT8 9 10 CARS In the absence of trade that is, autarky), the equilibrium price in Greenberg is s and the equilibrium price in Baxton is (Hint: Enter all monetary values in full. For example, $7,000 rather than $7.) In the absence of trade, which of the following statements is correct? O Greenberg and Barton are equally good at producing cars. O Greenberg has a comparative advantage in the production of cars. O Greenberg has the comparative disadvantage in production of cars. Now suppose both countries open up to international trade with each other. For each country, use the previous graph to compute the qualizing price, consumption and production at that price, and the quantity of exports and imports when there are no transportation costs. Enter these amounts into the first two rows of the following table. Equalizing Price Consumption at Equalizing Price Production at Equalizing Price Exports Imports (Dollars) (Cara) (Cars) (Cars) (Cars) Without Transportation Costs Greenberg Baxton With Transportation Costs Greenberg Baxton II II II II Now suppose that the per-unit cost of transporting a car between Greenberg and Baxton is $2,000
