Questions and Answers of International Trade

In March 2007 it was announced that several restaurants in the greater San Francisco area would no longer provide bottled water to their patrons to save on the environmental costs of transporting
In 2007, several members of Congress in the United States proposed that any further trade negotiations be accompanied by a “grand bargain” on labor standards. The problem with this action is that
Refer to following variations of the payoff matrix for the environmental game shown in Figure 11-7. In this problem, a number is assigned to represent the welfare level of each outcome for Home and
Refer to Figure 11-4 when answering this question.a. Redraw Figure 11-4, panel (a), assuming that the production externality is positive so that the SMC curve lies below the supply curve. Label the
Using Table 11-3, explain why environmentalists have “lost the battle but won the war” in their dealings with the WTO. Refer to specific WTO cases in your answer. Chapter 11 n International
Refer to the survey in Table 11-2 regarding consumers’ attitudes toward working conditions.a. Fill in the survey questions for yourself and at least five friends.b. Average your results, and
Redraw the graph of trade diversion (Figure 11-3) with the S′Mex curve intersecting the MUS curve between points A and D.a. When the United States and Mexico join NAFTA, who supplies auto parts to
Assume that Thailand and India are potential trading partners of China. Thailand is a member of ASEAN but India is not. Suppose the import price of textiles from India (PIndia) is 50 per unit under
Consider the following variation of Table 11-1 for the U.S. semiconductor market: U.S. TARIFF 0% 10% 20% From Canada, $46 $W $55.2 before NAFTA From Asia, $42 $X $Y before NAFTA From Canada, $46 $Z
Figure 11-2 shows the tariff game among large countries.a. Redraw the payoff matrix for a game between a large and small country.b. What is/are the Nash equilibrium/equilibria, assuming that the
a. How is a customs union different from a free-trade area? Provide examples of each.b. Why do some economists prefer multilateral trade agreements over regional trade agreements?
13. Provide motivations for the use of export subsidies. Does your answer depend on whether firms compete under perfect or imperfect competition?
12. Who gains and who loses when governments in Europe and the United States provide subsidies to Airbus and Boeing?
10. Refer to Problem 9. Based on your answer there, would foreign countries have a reason to object to the use of a sales tax on cigarettes by the United States? Based on your knowledge of the
9. Here we examine the effects of domestic sales taxes on the market for exports, as an example of the “targeting principle.” For example, in the domestic market, there are heavy taxes on the
8. Refer to Problem 7. Now suppose the European government wants Airbus to be the sole producer in the lucrative small-aircraft market. Then answer the following:a. What is the minimum amount of
7. Boeing and Airbus are the world’s only major producers of large, wide-bodied aircrafts. But with the cost of fuel increasing and changing demand in the airline industry, the need for smaller
6. Explain why the WTO is more concerned with the use of direct export subsidies than production subsidies in achieving the same level of domestic support.
5. Refer to Problem 3. Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers export 20 tons. But rather than an export subsidy, suppose the Home government
4. Refer to Problem 3. Rather than a small exporter of wheat, suppose that Home is a large country. Continue to assume that the free-trade world price is $100 per ton and that the Home government
3. Suppose Home is a small exporter of wheat. At the world price of $100 per ton, Home growers export 20 tons. Now suppose the Home government decides to support its domestic producer with an export
2. Consider a large country with export subsidies in place for agriculture. Suppose the country changes its policy and decides to cut its subsidies in half.a. Are there gains or losses to the large
1. Describe the impact of each of the following goals from the Hong Kong WTO meeting on(i) domestic prices and welfare of the country taking the action and (ii) world prices and welfare for the
Figures A, B, and C are taken from a paper by Chad Bown: “The Pattern of Antidumping and Other Types of Contingent Protection” (World Bank, PREM Notes No. 144, October 21, 2009), and updated from
If infant industry protection is justified, is it better for the Home country to use a tariff or a quota, and why? 324 Part 4 n International Trade Policies
What is a positive externality? Explain the argument of knowledge spillovers as a potential reason for infant industry protection.
Why is it necessary to use a market failure to justify the use of infant industry protection?
Suppose that in response to a threatened antidumping duty of t, the Foreign monopoly raises its price by the amount t.a. Illustrate the losses for the Home country.b. How do these losses compare with
Suppose the Home firm is considering whether to enter the Foreign market. Assume that the Home firm has the following costs and demand: Fixed costs = $140 Marginal costs = $10 per unit Local price =
Consider the case of a Foreign monopoly with no Home production, shown in Figure 9-7. Starting from free trade at point A, consider a $10 tariff applied by the Home government.a. If the demand curve
Suppose that the demand curve for a good is represented by the straight line P = 10 − Q Fill in the missing information in the following chart: Quantity Price Total Revenue Marginal Revenue 0 NA 1
In this problem, we analyze the effects of an import quota applied by a country facing a Foreign monopolist. In Figure 9-7, suppose that the Home country applies an import quota of X2, meaning that
Refer to the prices of Japanese auto imports under the VER (Figure 9-5) and answer the following:a. What component of the price of imported automobiles from Japan rose the most over the period 1980
Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly.a. Tariff t in a small country with perfect competitionb. Tariff
Figure 9-2 shows the free-trade equilibrium under perfect competition and under monopoly (both with the price PW). In this problem, we compare the welfare of Home consumers in the no-trade situation
Figure 9-1 shows the Home no-trade equilibrium under perfect competition (with the price P C ) and under monopoly (with the price P M). In this problem, we compare the welfare of Home consumers in
Suppose that a producer in China is constrained by the MFA to sell a certain number of shirts, regardless of the type of shirt. For a T-shirt selling for $2.00 under free trade, the MFA quota leads
Consider the following hypothetical information pertaining to a country’s imports, consumption, and production of T-shirts following the removal of the MFA quota: Without MFA With MFA (Free Trade)
Consider a small country applying a tariff t as in Figure 8-5. Instead of a tariff on all units imported, however, we will suppose that the tariff applies only to imports in excess of some quota
Refer to the graphs in Problem 11. Suppose that instead of a tariff, Home applies an import quota limiting the amount Foreign can sell to 2 units.a. Determine the net effect of the import quota on
Suppose Home is a small country. Use the graphs below to answer the questions. Quantity Price (a) Home Market 9 8 6 4 $14 S D 2 4 5 6 8 Price X* X* + t (b) Import Market M 2 6 Import $8 6a. Calculate
No U.S. tire producers joined in the request for the tariff on tires in 2009. Rather, the petition for a tariff on tires imported from China was brought by the United Steelworkers of America, the
What provision of U.S. trade law was used by President Barack Obama to apply a tariff on tires imported from China? Does this provision make it easier or harder to apply a tariff than Section 201?
Why did President George W. Bush suspend the U.S. tariffs on steel 17 months ahead of schedule?
Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly.a. Tariff of t in a small country corresponding to the quantity
Rank the following in ascending order of Home welfare and justify your answers. If two items are equivalent, indicate this accordingly.a. Tariff of t in a small country corresponding to the quantity
a. If the foreign export supply is perfectly elastic, what is the optimal tariff Home should apply to increase welfare? Explain.b. If the foreign export supply is less than perfectly elastic, what is
Consider a large country applying a tariff t to imports of a good like that represented in Figure 8-9. How does the size of the termsof-trade gain compare with the size of the deadweight loss when
Consider a large country applying a tariff t to imports of a good like that represented in Figure 8-9.a. How does the export supply curve in panel (b) compare with that in the small-country case?
Consider a small country applying a tariff t to imports of a good like that represented in Figure 8-5.a. Suppose that the country decides to reduce its tariff to t′. Redraw the graphs for the Home
The following questions refer to Side Bar: Key Provisions of the GATT.a. If the United States applies a tariff to a particular product (e.g., steel) imported from one country, what is the implication
11. It is widely noted that even though China is the favored destination for manufacturing offshoring, it is far behind India in the business of offshored services. What differences between these two
10. Why might it be relatively easier for a developing country like India to export service activities through offshoring than to participate in the global economy by producing manufacturing
9. In Figure 7-11, we saw that a fall in the relative price of components leads to an increase in the amount of components imported but that the amount of R&D exported from Home does not necessarily
8. The quote from the 2004 Economic Report of the President at the beginning of the chapter generated a lot of controversy that year, as discussed at the beginning of section 3 here. The chairman of
7. Read the following excerpt, and using what you have learned in this chapter, discuss how offshoring creates opportunities for the countries involved. Sudhakar Shenoy, chief executive of
6. The following diagram shows what happened to the relative wage and relative demand for skilled labor in the U.S. manufacturing sector during the 1990s. These points are plotted using the data from
5. Consider the model of a firm that produces final goods using R&D and components as inputs, with cost data as follows: Components: Total costs of production = PC • QC = 100 Earnings of
4. Consider the model of a firm that produces final goods using R&D and components as inputs, with cost data as follows: Components: Total costs of production = PC • QC = 100 Earnings of
3. Consider a U.S. firm’s production of automobiles, including research and development and component production.a. Starting from a no-trade equilibrium in a PPF diagram, illustrate the gains from
2. Consider an offshoring model in which Home’s skilled labor has a higher relative wage than Foreign’s skilled labor and in which the costs of capital and trade are uniform across production
1. Consider an offshoring model in which the hours of labor used in four activities in the United States and Mexico are as follows: Note that labor hours in Mexico are twice those in the United
9.a. Of two products, rice and paintings, which product do you expect to have a higher index of intra-industry trade? Why?b. Access the U.S. TradeStats Express website at http://tse.export.gov/.
6. The United States, France, and Italy are among the world’s largest producers. To answer the following questions, assume that their markets are monopolistically competitive, and use the gravity
5. Our derivation of the gravity equation from the monopolistic competition model used the following logic:(i) Each country produces many products.(ii) Each country demands all of the products that
4. Starting from the long-run trade equilibrium in the monopolistic competition model, as illustrated in Figure 6-7, consider what happens when industry demand D increases. For instance, suppose that
3. Starting from the long-run equilibrium without trade in the monopolistic competition model, as illustrated in Figure 6-5, consider what happens when the Home country begins trading with two other
12. A housekeeper from the Philippines is contemplating immigrating to Singapore in search of higher wages. Suppose the housekeeper earns approximately $2,000 annually and expects to find a job in
11. Figure 5-14 is a supply and demand diagram for the world labor market. Starting at points A and A*, consider a situation in which some Foreign workers migrate to Home but not enough to reach the
10. In Table 5-2, we show the growth in the real rental and real wages in Singapore, along with the implied productivity growth. One way to calculate the productivity growth is to take the average of
9. Recall the formula from the application“The Effect of FDI on Rentals and Wages in Singapore.” Give an intuitive explanation for this formula for the rental rate. Hint: Describe one side of the
8. Continuing from Problem 7, we now use the factor price insensitivity result to compare factor prices across countries in the HeckscherOhlin model.a. Illustrate the international trade equilibrium
7. In this question, we use the Rybczynski theorem to review the derivation of the HeckscherOhlin theorem.a. Start at the no-trade equilibrium point A on the Home PPF in Figure 4-2, panel (a).
6. Suppose that computers use 2 units of capital for each worker, so that KC = 2 • LC, whereas shoes use 0.5 unit of capital for each worker, so that KS = 0.5 • LS. There are 100 workers and 100
5. According to part A of Table 5-1, what education level loses most (i.e., has the greatest decrease in wage) from immigration to the United States? Does this result depend on keeping the rental on
4. In the short-run specific-factors model, consider a decrease in the stock of land. For example, suppose a natural disaster decreases the quantity of arable land used for planting crops.a. Redraw
3. Consider an increase in the supply of labor due to immigration, and use the long-run model.Figure 5-8 shows the box diagram and the leftward shift of the origin for the shoe industry.Redraw this
1. In the short-run specific-factors model, examine the impact on a small country following a natural disaster that decreases it population. Assume that land is specific to agriculture and capital is
12. According to the standard Heckscher-Ohlin model with two factors (capital and labor) and two goods, movement of Turkish migrants to Germany would decrease the amount of capitalintensive products
11. According to the Heckscher-Ohlin model, two countries can equalize wage differences by either engaging in international trade in goods or allowing high-skilled and low-skilled labor to freely
10. Following are data for soybean yield, production, and trade for 2010–2011:Suppose that the countries listed in the table are engaged in free trade and that soybean production is land-intensive.
9. The following are data on U.S. exports and imports in 2012 at the two-digit Harmonized Tariff Schedule (HTS) level.Which products do you think support the Heckscher-Ohlin theorem? Which products
8. On March 2, 2013, Tajikistan successfully negotiated terms to become a member of the World Trade Organization. Consequently, countries such as those in western Europe are shifting toward free
7. In Figure 4-3, we show how the movement from the no-trade equilibrium point A to a trade equilibrium at a higher relative price of computers leads to an upward-sloping export supply, from points A
6. Suppose when Russia opens to trade, it imports automobiles, a capital-intensive good.a. According to the Heckscher-Ohlin theorem, is Russia capital-abundant or laborabundant?Briefly explain.b.
5. Using a diagram similar to Figure 4-12, show the effect of a decrease in the relative price of computers in Foreign. What happens to the wage relative to the rental? Is there an increase in the
4. Using the information in the chapter, suppose Home doubles in size, while Foreign remains the same. Show that an equal proportional increase in capital and labor at Home will change the relative
3. Suppose there are drastic technological improvements in shoe production at Home such that shoe factories can operate almost completely with computer-aided machines. Consider the following data for
2. Leontief’s paradox is an example of testing a trade model using actual data observations. If Leontief had observed that the amount of labor needed per $1 million of U.S. exports was 100
1. This problem uses the Heckscher-Ohlin model to predict the direction of trade. Consider the production of handmade rugs and assembly line robots in Canada and India.a. Which country would you
12. In the text, we learned that workers displaced by import competition are eligible for compensation through the Trade Adjustment Assistance program. Firms are also eligible for support through
11. Similar to Home in Problem 10, Foreign also produces computers and wheat using capital, which is specific to computers; land, which is specific to wheat; and labor, which is mobile between the
10. Home produces two goods, computers and wheat, for which capital is specific to computers, land is specific to wheat, and labor is mobile between the two industries. Home has 100 workers and 100
9. Suppose two countries, Canada and Mexico, produce two goods: timber and televisions.Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between
8. In the specific-factors model, assume that the price of agricultural goods decreases while the price of manufactured goods is unchanged(DPA /PA < 0 and DPM /PM = 0). Arrange the following terms in
7. Read the article by Lori G. Kletzer and Robert E. Litan, “A Prescription to Relieve Worker Anxiety,” Policy Brief 01-2(Washington, D.C.: Peterson Institute for International Economics),
6. If instead of the situation given in Problem 5, the price of manufacturing were to fall by 10%, would landowners or capital owners be better off? Explain. How would the decrease in the price of
5. Use the information given here to answer the following questions:Manufacturing:Sales revenue = PM • QM = 150 Payments to labor = W • LM = 100 Payments to capital = RK • K = 50
4. Starting from equilibrium in the specific-factors model, suppose the price of manufactured goods falls so that wages fall from W ′ to W in Figure 3-5.a. Show that the percentage fall in the wage
3. In the gains from trade diagram in Figure 3-3, suppose that instead of having a rise in the relative price of manufactures, there is instead a fall in that relative price.a. Starting at the

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