Question

International Trade: End of Chapter Problems 2. For the following trade relationship, explain the likely source of the comparative advantage of each of the exporting countries. a. The United States exports software to Venezuela, and Venezuela exports oil to the United States. The United States has an endowment of oil, but software development depends on human capital, which the United States has in abundance relative to its oil reserves. Although Venezuela has an absolute advantage in oil production, the United States has a comparative advantage in both oil and software. The United States has a comparative, but not an absolute, advantage in oil production, and Venezuela has an absolute, but not a comparative, advantage in software production. The United States does not have domestic supplies of oil, and it is more efficient for Venezuela to use its resources to supply oil rather than software.

          International Trade: End of Chapter Problems
2. For the following trade relationship, explain the likely source of the comparative advantage of each of the
exporting countries.
a. The United States exports software to Venezuela, and Venezuela exports oil to the United States.
The United States has an endowment of oil, but software development depends on human capital, which the United
States has in abundance relative to its oil reserves.
Although Venezuela has an absolute advantage in oil production, the United States has a comparative advantage in both
oil and software.
The United States has a comparative, but not an absolute, advantage in oil production, and Venezuela has an absolute,
but not a comparative, advantage in software production.
The United States does not have domestic supplies of oil, and it is more efficient for Venezuela to use its resources to
supply oil rather than software.

International Trade: End of Chapter Problems
2. For the following trade relationship, explain the likely source of the comparative advantage of each of the
exporting countries.
a. The United States exports software to Venezuela, and Venezuela exports oil to the United States.
The United States has an endowment of oil, but software development depends on human capital, which the United
States has in abundance relative to its oil reserves.
Although Venezuela has an absolute advantage in oil production, the United States has a comparative advantage in both
oil and software.
The United States has a comparative, but not an absolute, advantage in oil production, and Venezuela has an absolute,
but not a comparative, advantage in software production.
The United States does not have domestic supplies of oil, and it is more efficient for Venezuela to use its resources to
supply oil rather than software.

Added by David R.

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