Question 12.8

1. Thanks to the development of huge oil sands in the province of Alberta, Canada has become an exporter of oil and an importer of manufactured goods.

   This situation reflects comparative advantage. Canada’s comparative advantage results from the development of oil—Canada now has an abundance of oil.

2. Like many consumer goods, the Apple iPod is assembled in China, although many of the components are made in other countries.

   This situation reflects comparative advantage. China’s comparative advantage results from an abundance of labor; China is good at labor-intensive activities such as assembly.

3. Since 2002, Germany has been running huge trade surpluses, exporting much more than it imports.

   This situation reflects macroeconomic forces. Germany has been running a huge trade surplus because of underlying decisions regarding savings and investment spending with its savings in excess of its investment spending.

4. The United States, which had roughly balanced trade in the early 1990s, began running large trade deficits later in the decade, as the technology boom took off.

   This situation reflects macroeconomic forces. The United States was able to begin running a large trade deficit because the technology boom made the United States an attractive place to invest, with investment spending outstripping U.S. savings.