1. Pricing below production cost or selling at prices in foreign markets less than those in domestic markets is known as __________.
2. Under global trade rules, the United States was allowed to ban Mexican tuna because Mexico used fishing nets that killed dolphins. __________ (True/False)
3. Suppose the United States has a comparative advantage in goods that use skilled labor. If we trade with a country that has a comparative advantage in goods using unskilled labor, the wage differences between skilled and unskilled labor in the United States will __________.
4. Under a scheme of __________pricing, a firm cuts its price to drive out rivals and then raises its price later.
5. Trade in Genetically Modified Crops. Suppose the residents of a country become fearful of using genetically modified crops in their food supply. Consider the following two possible scenarios:
a. Aware of consumer sentiment, the largest supermarket chains in the country vow they will not purchase food products that use genetically modified crops.
b. The government, aware of voter sentiment during an election year, bans the import of the food products that use genetically modified crops. In both cases, no genetically modified crops enter the country. Does either of these cases run afoul of WTO policies?
6. Blinder versus Bhagwati on Outsourcing of Services. In an essay in the journal Foreign Affairs, Princeton economist Alan Blinder warned that the United States potentially faces great dangers from outsourcing of services. Columbia economist Jagdish Bhagwati was highly skeptical of this argument. Read both articles and come to your own assessment. The Blinder article, Off-shoring: The Next Industrial Revolution, Foreign Affairs, March/April 2006, is available at www.foreignaffairs.org/20060301f a e s s a y85209/ a l an- s -blinder /offshoring-he-next-industrial-revolution.html (accessed April 29, 2010).The Bhagwati article, Don t Cry for Free Trade, New York: Council of Foreign Relations, October 15, 2007, is available at www.cfr.org/publication/14526/dont_cry_for_free_trade.html (accessed April 29, 2010).
7. A Dumping Calculation. To produce 100 units of a good, a firm needs $40,000 in labor, $60,000 in material and capital cost, and requires a 10 percent profit rate. What would be the hypothetical price calculated for this firm? Suppose the profit rate was 20 percent how would the price change?
8. What Do the Poor and the Rich Buy? In Application 4, we highlighted research showing that the nondurable goods the poor buy have gone up in price less than those purchased by the rich and that the poor buy a higher percentage of newer goods than the rich. Can you give some examples of these price differences from your experience at normal and upscale supermarkets? Visit a couple of same-industry stores such as Walmart and Whole Foods to collect data if necessary