Trade between Similar Economies

Countries with similar economies are more likely to trade with one another, especially if they are at a similar development level, have political or security partnerships, or have cultural ties. Why might that be? Consider that qustion as you read this section, and then answer the questions at the end of the section.

Problems

  1. From earlier chapters you will recall that technological change shifts the average cost curves. Draw a graph showing how technological change could influence intra-industry trade.
  2. Consider two countries: South Korea and Taiwan. Taiwan can produce one million mobile phones per day at the cost of $10 per phone and South Korea can produce 50 million mobile phones at $5 per phone. Assume these phones are the same type and quality and there is only one price. What is the minimum price at which both countries will engage in trade?