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vi Contents

Changing Comparative Advantage ................. 47 Trading Under Increasing-Cost Conditions ...... 49

Increasing-Cost Trading Case ..................... 50 Partial Specialization ............................... 52 The Impact of Trade on Jobs ........................ 52

Comparative Advantage Extended to Many Products and Countries ............................... 53

More Than Two Products ......................... 54 More Than Two Countries ........................ 55 Exit Barriers ............................................. 55

Empirical Evidence on Comparative Advantage ................................................ 56

Does Comparative Advantage Apply in the Face of Job Outsourcing? ............................. 58 Advantages of Outsourcing ........................ 58

Outsourcing of Boeing 787 Dreamliner Triggers Machinists Strike ........................ 60

Outsourcing and the U.S. Automobile Industry ................................................ 61

Burdens of Outsourcing ............................ 61

Some U.S. Manufacturers Prosper by Keeping Production in the United States .................. 62

Summary ................................................. 63 Key Concepts & Terms ............................... 64 Study Questions ........................................ 64

CHAPTER 3

Sources of Comparative Advantage .................................................... 69

Factor Endowments as a Source of Comparative Advantage .............................. 69

The Factor-Endowments Theory .................. 70

Intra-industry Trade ................................... 91

Technology as a Source of Comparative Advantage: The Product Cycle Theory ............ 93

Visualizing the Factor-Endowment Theory .................................................. 72

Radios, Pocket Calculators, and the International Product Cycle ....................... 95

Applying the Factor-Endowment Theory to U.S.-China Trade ................................ 73

Dynamic Comparative Advantage: Industrial Policy ........................................ 96

Factor-Price Equalization .......................... 74

Who Gains and Loses From Trade? The Stolper-Samuelson Theorem ................. 76

Globalization Drives Changes for U.S. Automakers ..................................... 78

Is International Trade a Substitute for Migration? ........................................ 80

Government Subsidies Support Boeing and Airbus ............................................... 98

Government Regulatory Policies and Comparative Advantage .............................. 99

Transportation Costs and Comparative Advantage ............................................... 101

Trade Effects ........................................ 101

Specific Factors: Trade and the Distribution of Income in the Short Run ....................... 81

Falling Transportation Costs Foster Trade Boom ......................................... 103

Does Trade Make the Poor Even Poorer? ........ 82

Does a Flat WorldMake Ricardo Wrong? ................................................. 84

Skill as a Source of Comparative Advantage .... 85

Increasing Returns to Scale and Comparative Advantage ................................................ 87

External Economies of Scale and Comparative Advantage ................................................ 89

Rising Energy Costs Hinder Trade Flows .................................................. 104

Terrorist Attack Results in Added Costs and Slowdowns for U.S. Freight System: A New Kind of Trade Barrier? ................. 105

Summary ................................................ 107 Key Concepts & Terms .............................. 108 Study Questions ....................................... 108

Overlapping Demands as a Basis for Trade ...... 90

Copyright 2010 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.

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