Econ assignment 2 Example | Topics and Well Written Essays - 250 words

Econ 2 - Assignment Example Sweden has comparative advantage in Volvos while Norway has a comparative advantage in fish. The free trade relative price is different from the autarkic relative price and thus both countries gain. Both countries specialize in their comparative goods and thus they gain. The minimum expenditure that is needed to attain the autarkic level of utility at autarkic prices is lower than the minimum expenditure required in achieving the free trade level of utility at autarkic prices. The external economies of scale are important in production of semiconductors and the industries are concentrated in certain locations. Thus if a semiconductor industry is established in a certain location, the export of semiconductors by the country will not be due to comparative advantage but the economies of scale. It is true, and Scotch only comes from Scotland since it requires skilled distillers who are mostly found in the region. The region also features favorable climatic and soil conditions for the grains used in the production of scotch. The production subsidy creates an imaginary shift of the supply curve to the right since producers are willing to supply larger quantities at every price due to the subsidy. The rightward shift crosses the $10 line at the quantity, 170 and producers gain in the area, which is given by (120x5) + (50x5/2)= 725, the government will lose an amount = (170x5) = 850 and the social benefit = (10x50) = 500 Goldberg, Linda S., Michael W. Klein, Jay C. Shambaugh, and Paul R. Krugman. Study guide to accompany International economics, theory and policy, sixth edition, Paul R. Krugman, Maurice Obstfeld. Boston, Mass.: Addison Wesley, 2003. Web. 8 July 2014