Another two years later, you work for the same company but have relocated to the division headquarters in the country of Waffland. You are speaking with a coworker about the Wafflish economy, and what can be done to improve it.

Your coworker bemoans the trade deficit that Waffland has with Baconia, FrenchToastia, and other delicious countries: "We can't get ahead if we keep sending our money to these countries that are selling us their cheap goods!" How would you respond?

Select one:

a."Since their goods are cheap, it is a sign that our own goods are relatively expensive. It benefits us both if those countries are willing to trade their cheap goods with us so we can specialize in industries in which we are relatively more productive. We both come out ahead by engaging in trade."

b.

"It is false to believe that a trade deficit implies that we are sending more money to those countries than they are sending to us. The trade statistics only show the value of imports (e.g., their cheap goods), but they do not show the value of what we export to those countries."

c.

"The trade deficit itself is harmful since we are sending our money to those countries. However, the situation is not all bad since we are at least getting some cheap goods in exchange. While the situation is one of harm to our country overall, the benefit to our consumers of receiving cheap goods is worth it."

d.

"The trade deficit actually implies that, even though those countries sell us cheap goods, we are selling even cheaper goods and services to them. All countries can 'get ahead' by only allowing trade in cheap goods, and preventing competition in industries producing expensive goods and services."

Your coworker has a "Buy Wafflish!" bumper sticker, and asks you to sign a petition advocating the imposition of tariffs (i.e., import taxes) against these other countries. He even provides data from a trade association describing how its industry will save billions of Wafflish dollars if these policies are implemented. How would you respond?

Select one:

a.

Your coworker's position is confusing, since the tariffs will harm the industry despite what its trade association may say. Tariffs always harm domestic industries while bringing a greater overall benefit to domestic consumers.

b.

Whether the tariffs are beneficial is uncertain, but the added information of the benefit to the industry suggests that the policies will lead to overall economic gain.

c.

The industry may indeed "save" billions with these policies, but the harm imposed on Wafflish consumers will be even greater. The policies will lead to overall economic harm, not benefit.

d.

The tariffs will benefit the country overall since they will prevent cheap imports, but the domestic industry will likely only save a small fraction of what its data says.