Question

Suppose the amount of exports of textile machinery from Italy to the rest of the world equals 60 billion tons. The amount of imports of textile machinery into Italy from the rest of the world is 40 billion tons. Therefore, the intra-industry trade share for machinery is:a) 0.2b) 0.8c) 1.5d) 0.67

Answer 1

b) 0.8

Explanation:

We have been given that the amount of exports of textile machinery from Italy to the rest of the world equals 60 billion tons. The amount of imports of textile machinery into Italy from the rest of the world is 40 billion tons.

To find the intra-industry trade share for machinery, we will use following formula:

`\text{Intra-industry trade}=1-(|X_i+M_i|)/(X_i+M_i)`, where,

X = Exports,

M = Imports,

i = Industry

Substitute the given values:

`\text{Intra-industry trade}=1-(|60-40|)/(60+40)`

`\text{Intra-industry trade}=1-(|20|)/(100)`

`\text{Intra-industry trade}=1-(20)/(100)`

`\text{Intra-industry trade}=1-0.20`

`\text{Intra-industry trade}=0.80`

Therefore, the intra-industry trade share for machinery is 0.8 and option 'b' is the correct choice.