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business
international trade

Questions and Answers of International Trade

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
Why do governments set the living standards of the people by setting the minimum wage? (Think about your answer to Problem 7.) LO.1
International immobility of resources is compensated by the international flow of goods. Justify the statement. LO.1
We have focused on the case of trade involving only two countries. Suppose that there are many countries capable of producing two goods and that each country has only one factor of production, labor.
Explain how differences in resources generate a specific pattern of trade. LO.1
Discuss why the gains from trade will not be equally spread even in the long run and identify the likely winners and losers. LO.1
Understand the possible links between increased trade and rising wage inequality in the developed world. LO.1
See how empirical patterns of trade and factor prices support some (but not all) of the predictions of the factor-proportions theory. LO.1
Explain why the Leontief paradox and the more recent Bowen, Leamer, and Sveikauskas results reported in the text contradict the factor-proportions theory. LO.1
Recognize why international trade often occurs from increasing returns to scale. LO.1
Understand the differences between internal and external economies of scale. LO.1
Discuss the sources of external economies. LO.1
Discuss the roles of external economies and knowledge spillovers in shaping comparative advantage and international trade patterns. LO.1
Trade need not be the result of comparative advantage. Instead, it can result from increasing returns or economies of scale, that is, from a tendency of unit costs to be lower with larger output.
Economies of scale can lead to a breakdown of perfect competition, unless they take the form of external economies, which occur at the level of the industry instead of the firm. LO.1
External economies give an important role to history and accident in determining the pattern of international trade. When external economies are important, a country starting with a large advantage
Consider a situation similar to that in Figure 7-3, in which two countries that can produce a good are subject to forward-falling supply curves. In this case, however, suppose the two countries have
Recently, a growing labor shortage has been causing Chinese wages to rise. If this trend continues, what would you expect to see happen to external economy industries currently dominated by China?
In our discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it’s to the advantage of
As we saw in the text, the Chinese town of Qiaotou produces 60 percent of the world’s buttons. One problem is that Qiaotou is a relatively small village and its production is carried out by small,
Evaluate the costs and benefits of tariffs, their welfare effects, and winners and losers of tariff policies. LO.1
Discuss what export subsidies and agricultural subsidies are and explain how they affect trade in agriculture in the United States and the European Union. LO.1
Recognize the effect of voluntary export restraints (VERs) on both importing and exporting countries and describe how the welfare effects of these VERs compare with tariff and quota policies. LO.1
Home’s demand curve for books is D = 50 - 10P.Its supply curve is S = 10 + 10P.Derive and graph Home’s import demand schedule. What would the price of books be in the absence of trade? LO.1
Suppose Foreign had been a much smaller country with domestic demand.D* = 8 - 2P, S* = 4 + 2P.(Notice that this implies the Foreign price of books in the absence of trade would have been the same as
Return to the example of Problem 2. Starting from free trade, assume that Foreign offers exporters a subsidy of 1.5 per unit. Calculate the effects on the price in each country and on welfare, both
Suppose workers involved in manufacturing are paid less than all other workers in the economy. What would be the effect on the real income distribution within the economy if there were a substantial

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