In industries where the final product is much less weighty...

In industries where the final product is much less weighty or bulky than the materials from which it is made, firms tend to locate production near resource supplies. True False Question 10 (5 points) Saved Which trade theory suggests that comparative advantage tends to shift from one nation to another as a product matures? Interindustry trade theory Intraindustry trade theory Product life cycle theory Overlapping demand theory

Transcript

00:01 So here we have a multiple choice question about why comparative advantage yields gains from trade, right? and here that is driven by one constant returns to scale.

00:14 This is the correct assumption, right? this matters because otherwise the tradeoff would change.

00:26 Right when we do the comparative advantage opportunity cost accounting we can treat these constants one for 13 .5 40 for one 20 for one etc etc as fixed right that implies constant returns to scale otherwise as you scale the country up to do more of one thing or scale the country down to do less of another thing those ratios would change right the numbers would be inapplicable, right? you need to be given functions, not constants.

01:02 The reason that we can write this problem in terms of constants and make conclusions about opportunity cost is specifically because we have assumed constant returns to scale, which means that those numbers stay the same as you make the country bigger or smaller, more or less productive, right? the rest are wrong, right? dynamic prices no such thing here right the prices and everything here is fixed right there is nothing dynamic these things are literally fixed they are the opposite of dynamic and that's because right three barriers to trade no to sectors right this is again wrong right in fact, we have assumed no such thing.

02:00 Again, if there were barriers to sectors, we would need to have something about the costs to moving those resources between sectors, right? because that would vary.

02:11 If we are going to use resources that are allocated to coco, it would be a different price, different resources, different trade -offs than if we were switching resources from one good to another.

02:21 So here we've actually assumed that there are no barriers, right? or we have assumed no specialization...

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