Questions and Answers of International Trade

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 no-trade
If instead of the situation given in the Work It Out problem, the price of manufacturing were to fall by 20%, would landowners or capital owners be better off? Explain. How would the decrease in the
In the specific-factors model, assume that the price of agricultural goods decreases while the price of manufactured goods is unchanged (ΔPA/PA < 0 and ΔPM/PM = 0).Arrange the following terms in
Does immigration lower wages?LO.1
Which industries expand because of immigration?LO.1
Who gains when foreign companies move in?LO.1
Discovering Data Under Headlines: Brussels Resumes Policy Push to Share Out Refugees Across EU, there is a map showing persons seeking asylum in the European Union as of May 2015. In this question,
In the short-run specific-factors model, examine the impact on a small country following a natural disaster that decreases its population. Assume that land is specific to agriculture, and capital is
How would your answer to Problem 2 change if instead we use the long-run model, with shoes and computers produced using labor and capital?LO.1
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
Continuing from Problem 7, we now use the factor price insensitivity result to compare factor prices across countries in the Heckscher–Ohlin model.a. Illustrate the international trade equilibrium
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
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
A housekeeper from the Philippines is contemplating immigrating to Singapore in search of higher wages. Suppose the housekeeper earns approximately $3,000 annually and expects to find a job in
Why do some firms shift parts of their production to other countries?LO.1
Who can gain when firms shift their production abroad?LO.1
Do countries gain overall when their firms offshore to other countries?LO.1
Discovering Data What type of occupation would you like to pursue after graduation? To see what is available, go to the Bureau of Labor Statistics website at:http://www.bls.gov/ooh/.a. Find four
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
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 = 200 Earnings of high-skilled
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 = 200 Earnings of high-skilled
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 Information
The quote from the 2004 Economic Report of the President at the beginning of the chapter generated a lot of controversy that year. The chairman of the Council of Economic Advisers, N. Gregory Mankiw,
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
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
Chinese hourly manufacturing wages have increased by 12% per year on average since 2001, which is much higher than wage growth in developed or other developing countries. How will this wage growth in
Can governments use trade policy to give home firms a strategic advantage in their markets?LO.1
Why would foreign firms dump their products by exporting them at a price below their costs?LO.1
Is there an argument for using infant industry protection, and has it worked in practice?LO.1
Discovering Data Figures A, B, and C (see the next page) are taken from Chad Bown: “The Pattern of Antidumping and Other Types of Contingent Protection”(World Bank, PREM Notes No. 144, October
Figure 9-1 shows the Home no-trade equilibrium under perfect competition (with the price PC) and under monopoly (with the price P M). In this problem, we compare the welfare of Home consumers in
Rank the following in descending 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.
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
Suppose that the demand curve for a good is represented by the straight line P = 20 – 2Q Fill in the missing information in the following chart:Quantity Price Total Revenue Marginal Revenue 0 NA 12
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 = $100 Marginal costs = $15 per unit Local price =
Why is it necessary to use a market failure to justify the use of infant industry protection?LO.1
What is a positive externality? Explain the argument of knowledge spillovers as a potential reason for infant industry protection.LO.1
If infant industry protection is justified, is it better for the Home country to use a tariff or a quota, and why?LO.1
Why do wealthy countries subsidize their farmers?LO.1
Can countries control the export of their rare natural resources?LO.1
Why do countries subsidize their high-tech exports?LO.1
Discovering Data In Figure 10-8 we showed the value of Chinese exports of rare earth minerals, along with their average price and quantity sold, in three categories of exports. The source for the
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 partner
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.LO.1
Boeing and Airbus are the world’s only major producers of large wide-bodied aircrafts. But the increasing cost of fuel and the changing demand in the airline industry increases the need for smaller
To improve national welfare, a large country would do better to implement an export subsidy rather than an import tariff. Is this true or false? Explain why.LO.1
Who gains and who loses when governments in Europe and the United States provide subsidies to Airbus and Boeing?LO.1
Provide reasons for countries to use export subsidies. Does your answer depend on whether firms compete under perfect or imperfect competition?LO.1
Why is the World Trade Organization needed?LO.1
Do all countries gain when a regional free-trade area is formed?LO.1
Does international trade help or harm the environment?LO.1
Discovering Data In Application: The Trans-Pacific Partnership, we summarized some of the provisions of TPP and the views of consumer and environmental groups. The text of the TPP agreement is
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?LO.1
Figure 11-2 shows the tariff game between Home and Foreign, both large countries.a. Redraw the payoff matrix for a game between a large and small country.b. What is/are the Nash
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
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
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.LO.1
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
Articulate arguments for free trade that go beyond the conventional gains from trade. LO.1
Evaluate national welfare arguments against free trade. LO.1
Relate the theory and evidence behind “political economy” views of trade policy. LO.1
Explain how international negotiations and agreements have promoted world trade. LO.1
Discuss the special issues raised by preferential trade agreements. LO.1
Suppose demand and supply are exactly as described in Problem 3, but there is no marginal social benefit to production. However, for political reasons, the government counts a dollar’s worth of
Upon Poland’s entering the European Union, suppose it is discovered that the cost of automobile production in Poland is €20,000 while it is €30,000 in Germany.Suppose the EU, which has a
Give an intuitive explanation for the optimal tariff argument. LO.1
If governments make trade policies based on national economic welfare, is the problem of trade warfare still represented by a Prisoner’s Dilemma game as in Table 10-3? What is the equilibrium
Recapitulate the case for protectionism as it has been historically practiced in developing countries and discuss import-substitution-led industrialization and the “infant industry” argument. LO.1
Summarize the basic ideas behind “economic dualism” and its relationship to international trade. LO.1
Discuss the recent economic history of the Asian countries, such as China and India, and detail the relationship between their rapid economic growth and their participation in international trade.
Trade policy in less-developed countries can be analyzed using the same analytical tools used to discuss advanced countries. However, the particular issues characteristic of developing countries are
Government policy to promote industrialization has often been justified by the infant industry argument, which says that new industries need a temporary period of protection against competition from
Using the infant industry argument as justification, many less-developed countries pursued policies of import-substituting industrialization in which domestic industries are created under the
Beginning about 1985, many developing countries, dissatisfied with the results of import-substitution policies, greatly reduced rates of protection for manufacturing.As a result, developing-country
The view that economic development must take place via import substitution, and the pessimism about economic development that spread as import-substituting industrialization seemed to fail, have been
Summarize the more sophisticated arguments for interventionist trade policy, especially those related to externalities and economies of scale. LO.1
Evaluate the claims of the anti-globalization movement related to trade effects on workers, labor standards, and the environment in light of the counterarguments. LO.1
Discuss the role of the World Trade Organization (WTO) as a forum for resolving trade disputes and the tension between the rulings of the WTO and individual national interests. LO.1
Discuss key issues in the debate over trade policy and the environment. LO.1
Some new arguments for government intervention in trade have emerged over the past quarter-century: The theory of strategic trade policy offered reasons why countries might gain from promoting
Activist trade policy arguments rest on two ideas. One is the argument that governments should promote industries that yield technological externalities. The other, which represents a greater
With the rise of manufactured exports from developing countries, a new movement opposed to globalization has emerged. The central concern of this movement is with the low wages paid to export
An examination of cases suggests how difficult the discussion of globalization really is, especially when one tries to view it as a moral issue; it is all too easy for people to do harm when they are
To the extent that globalization promotes economic growth, it has ambiguous effects on the environment. The environmental Kuznets curve says that economic growth initially tends to increase
There is growing concern that globalization may allow highly polluting industries to move to pollution havens, where regulation is looser. There is little evidence that this is a major factor in
A recent concern, driven by growth in Chinese exports, is that rapid, large changes in international trade may cause severe losses to geographically concentrated groups of workers and their
What were some of the reasons for the decline in the import-substituting industrialization strategy in favor of a strategy that promotes open trade? LO.1
What are the disadvantages of engaging in strategic trade policy even in cases in which it can be shown to yield an increase in a country’s welfare? LO.1
What are the key assumptions that allow strategic trade policy to work in the Brander-Spencer example of Airbus and Boeing? LO.1
What is the main critique against the WTO with respect to environmental protection?How does the WTO justify its position on trade disputes that involve environmental issues? LO.1
Describe how the value of trade between any two countries depends on the size of these countries’ economies and explain the reasons for that relationship.LO.1
Discuss how distance and borders reduce trade.LO.1
Describe how the share of international production that is traded has fluctuated over time and why there have been two ages of globalization.LO.1
Explain how the mix of goods and services that are traded internationally has changed over time.LO.1
Equation (2-1) says that trade between any two countries is proportional to the product of their GDPs. Does this mean that if the GDP of every country in the world doubled, world trade would
Explain how the Ricardian model, the most basic model of international trade, works and how it illustrates the principle of comparative advantage. LO.1
Demonstrate gains from trade and refute common fallacies about international trade. LO.1
Describe the empirical evidence that wages reflect productivity and that trade patterns reflect relative productivity. LO.1
Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2.a. Graph Home’s
“It has been all downhill for the West since China entered the world market; we just can’t compete with hundreds of millions of people willing to work for almost nothing.” Discuss. LO.1

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