ch 19 Alexi econ
Why would a federal government program to inspect catfish be considered an example of protectionism?
A federal program to inspect catfish creates a barrier to trade.
In the real world, specialization is not complete. Why do countries not completely specialize?
ALL Because not all goods are traded internationally. Because production of most goods involves increasing opportunity costs. Because tastes for products differ.
If the United States were to stop trading goods and services with other countries, which of the following U.S. industries would be likely to see their sales decline the most?
ALL Most of the agriculture industry. Some service industries. Most manufacturing industries.
What advantages does being located in Boulder give to startup natural food firms?
External economies
As long as countries only produce goods in which they have a comparative advantage and trade those goods for ones in which they do not have a comparative advantage, everyone gains and no one loses as a result of international trade.
FALSE
Countries gain from specializing in producing goods in which they have an absolute advantage and trading for goods in which other countries have an absolute advantage.
FALSE
A political commentator makes the following statement: "The idea that international trade should be based on the comparative advantage of each country is fine for rich countries like the United States and Japan. Rich countries have educated workers and large quantities of machinery and equipment. These advantages allow them to produce every product more efficiently than poor countries can. Poor countries like Kenya and Bolivia have nothing to gain from international trade based on comparative advantage." Is the commentator correct or incorrect?
INCORRECT
Do you agree that a country only benefits from free trade if every other country also practices free trade?
NO
Which of the two arguments is most convincing?
Since both of these arguments are based on normative statements, someone could find either argument more convincing
As a result of the effect of the sugar quota, the U.S. price of sugar is higher than the world price of sugar.
TRUE
There is little doubt who wins [from trade] in the long run: consumers.
TRUE
Trade allows a country "to produce more with less."
TRUE
Given your answer above, why would Toyota's decision to produce three million cars in Japan have been easier two years ago?
The foreign demand for Japanese Toyota exports was greater.
An economic analysis of a proposal to impose a quota on steel imports into the United States indicated that the quota would save 3,700 jobs in the steel industry but cost about 35,000 jobs in other U.S. industries. A quota on steel imports would cause employment to fall in other industries because what happens to the costs of producing goods that use steel?
The quota RAISES the costs of producing goods that use steel.
How does the World Trade Organization (WTO) allow countries to determine whether dumping has occurred? The WTO allows countries to determine that dumping has occurred if
a product is exported for a lower price than it sells for on the home market.
Amazon is exposed to foreign exchange risk because changes in exchange rates affect
amazon's prices
As a result of divergence, the value of the dollar graph 6.8
appreciates
Currency ___________ occurs when the market value of a country's currency rises relative to the value of another country's currency, while currency ____________ occurs when the market value of a country's currency declines relative to value of another country's currency.
appreciation; depreciation
Suppose that the exchange rate between the dollar and the euro was 0.846 per dollar in May 2018 and 0.866 per dollar in August 2018. From May 2018 to August 2018, the euro
depreciated against the dollar because more euros are needed to purchase one dollar.
All exchange rates are determined in the market for foreign exchange.
false
The United States is the leading exporting country in the world.
false
The opponents of globalization contend that
globalization destroys cultures.
Briefly explain whether the value of U.S. exports is typically larger or smaller than the value of U.S. imports. The value of U.S. exports For the U.S. economy, imports and exports represent A LARGER fraction of GDP compared to what they were in 1970.
has been smaller than the value of U.S. imports since about 1980.
U.S.households and U.S. firms supply U.S. dollars in exchange for foreign currency
if the interest rate and other conditions in the foreign countries are lucrative for U.S. firms and households to invest dollars.
The United States practices "sugar protectionism" by
imposing a quota on sugar imports.
A depreciation in the domestic currency will
increase exports and decrease imports, thereby increasing net exports.
the economic variable that is "diverging" because of differences between the monetary policy of the Fed, on the one hand, and the monetary policies of the central banks of Europe and Japan, on the other hand, is
interest rates
The outcome in Rochester shows that globalization
is good for some, like the consumers of digital cameras, and bad for others, like the unemployed Kodak workers.
"Sugar protectionism" is viewed as a "job killer" because
it leads to job losses in the candy industry and various food manufacturing industries that use sugar.
n what way is sugar protectionism a burden on consumers? As far as the effect of "sugar protectionism" on U.S. consumers is concerned,
it raises the prices of sugar and candy that consumers have to pay and leads to a loss of consumer surplus.
The use of trade barriers to shield domestic companies from foreign competition is called
protectionism
"Dumping" is
selling a product for a price below its cost of production.
A recession in the United States will
shift the supply curve of dollars to the left.
When the exchange rate (measured as foreign currency per dollar) is above the equilibrium exchange rate, there is a ___________ of dollars and, consequently, ____________ pressure on the exchange rate.
surplus; downward
What has caused most of the decline in U.S. manufacturing employment since the 1940s? Most of the decline in U.S. manufacturing since the 1940s is due to
technological change.
The federal government did not adopt this alternative policy because
the United Steelworkers Unions had sufficient political power to persuade Congress to pass this tariff.
All of the following statements correctly describe the outcomes when the U.S. imports products in which it does not have a comparative advantage, except that
the number of jobs in the U.S is reduced.
The term external economies refers to
the reduction of costs resulting from increases in the size of an industry in a given area.
Which of the following is a source of comparative advantage?
the relative abundance of capital and labor
Although international trade leads to substantial net benefits, not everyone gains from international trade. Which of the following groups is most likely to lose from trade?
the workers and companies in the industries that compete with the imports
The general public's opinion of foreign trade might be substantially different during an economic recession as opposed to during an economic expansion because during an economic recession,
unemployment is higher and workers will more likely resent foreign competition.
Foreign households and foreign firms demand U.S. dollars in exchange for foreign currency for all of the following, except
when U.S. firms and households want foreign currencies so that they can buy goods and services produced in those foreign countries.
When the New York Times columnist concluded that this was, "... precisely the way globalization is supposed to work" he meant that
when an industry changes, jobs will be created in other sectors
When will the demand curve for dollars in exchange for yen shift to the right?
when speculators decide that the value of the dollar will rise relative to the value of the yen
Protectionism is the use of TRADE BARRIERS to shield domestic firms from foreign competition. Who benefits and who loses from protectionist policies? What are the main arguments people use to justify protectionism?
winner Workers in trade protected industries. loser Industries that use trade protected goods as inputs.
It would be possible for middle- and lower-income Americans to be both the biggest losers and at the same time the biggest winners from free trade if they are the ones most likely to
work in industries that produce at higher opportunity cost than in other countries and purchase those goods that can be produced at lower opportunity cost in other countries.
By specializing in the production of the goods and services in which they have A COMPARATIVE advantage, countries allocate resources more efficiently. In other words, goods and services are produced at their lowest OPPORTUNITY cost and world output increases. Since countries are producing goods and services at different opportunity costs, TERMS OF TRADE can be negotiated that will allow all countries to consume more with trade than in autarky.
CAPS
Which of the following is not one of the main sets of factors that cause the supply and demand curves in the foreign exchange market to shift?
Changes in the U.S. supply of oil and changes in the foreign supply of oil.
What does the article mean that China's emergence as a trade powerhouse rattled the U.S. economy?
China began exporting more goods than the United States had been producing.
The article noted that "places in America more exposed to these Chinese imports [were] typically those with lots of labor-intensive manufacturing." Why would places with lots of labor-intensive manufacturing be more exposed to Chinese imports? Places with lots of labor-intensive manufacturing jobs have been affected more by Chinese imports because
China has a comparative advantage in producing labor-intensive products.
What does the article mean by the "China-shock literature?" The "China-shock literature" is research that examines the effects of
Chinese access to world markets.
Dumping is selling a product BELOW its cost of production. Who benefits and who loses from dumping? What problems arise when implementing anti-dumping laws?
Consumers benefit while competing firms lose; The true production costs are not easy for foreign governments to calculate.
Suppose that the exchange rate between the dollar and the euro was 0.856 per dollar in July 2018 and 0.870 per dollar in October 2018. From July 2018 to October 2018, the euro
DEPRECIATED against the dollar because more euros are needed to purchase one dollar
Briefly explain whether you agree or disagree with the following statement: "International trade is more important to the U.S. economy than to most other economies."
Disagree. Exports and imports are a relatively small fraction of the United States GDP.
Briefly explain whether you agree with the following statement: "Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports a larger fraction of its GDP than do Germany, the United Kingdom, or the United States."
Disagree. Japan exports about 20% of its GDP, of the above, only the U.S. exports a smaller percentage.
Do you agree that reducing barriers to trade reduces the number of jobs available to workers in the United States?
Disagree. While some jobs are saved by trade restrictions, many more jobs are lost in industries that use trade restricted goods as inputs.
Who gains and who loses when a country imposes a tariff or a quota on imports of a good? Suppose the United States imposes a tariff or quota on sugar imports. For each of the following, enter the letter G if it will gain from the tariff or quota or enter the letter L if it will lose from the tariff or quota.
Domestic sugar producers and their workers G Consumers L Industries that use sugar and their workers L The U.S. economy L
Why didn't economists and policymakers expect the economic effect of imports from China to be as great as it turned out to be?
Economists and policymakers didn't expect the large number of job losses to occur so quickly.
When an industry receives tariff or quota protection, there is no effect on other domestic industries.
FALSE
Does the article imply that in 2017 it took more than 120 yen to exchange for a dollar or fewer than 120 yen? Briefly explain.
Fewer than 120 yen, making Japanese Toyota exports more expensive.
Was this good news or bad news for firms such as Apple and Yum Brands (owners of KFC and Pizza Hut) that have stores or restaurants in China? Briefly explain.
Good news, because they will earn more dollars when they convert an appreciated yuan into U.S. dollars.
Which of the following describes the importance of international trade around the world?
Imports and exports remain a smaller fraction of GDP in the US than in most other countries
which of the following is not a main source of comparative advantage?
Internal economies of scale.
What is meant by a country specializing in the production of a good? Is it typical for countries to be completely specialized?
It shifts resources toward producing only those goods where it has a comparative advantage; No
In the example in the text with Japan and America producing and trading cell phones and tablet computers, America has a comparative advantage in tablet computers while Japan has a comparative advantage in cell phones. Which of the following statements correctly describes the outcome when America imports cell phones from Japan?
Jobs in the American cell phone industry may suffer but jobs in the American computer industry manufacturing tablet computers increase and in the overall American economy, more jobs are created.
Which of the following is an example of positive economic analysis?
Measuring the effect of the sugar quota on the U.S. economy.
In each year, the value of Canada's exports to the United States exceeded the value of U.S. exports to Canada. Can we conclude that foreign trade between the two countries benefited Canada more than it benefited the United States?
No, countries will engage in trade when there is a gain from trade to both parties.
Are they correct in asserting that free trade costs U.S. jobs?
No, since free trade creates more jobs for the U.S. economy than it costs the U.S.
Former President Barack Obama once described a trade agreement reached with the government of Colombia as a "'win-win' for both our countries." Is everyone in both countries likely to win from the agreement?
No, workers employed at companies that are less efficient than foreign companies will lose jobs.
According to an opinion column in the New York Times, because of attempts to make it more difficult to import catfish into the United States, during 2015 many Vietnamese businesses that export catfish shifted from exporting to the United States to exporting to China.
Restrictions on catfish imports into the United States result in HIGHER prices that HARM U.S. consumers of catfish. U.S. suppliers of catfish GAIN Chinese consumers GAIN because they can import MORE catfish from Vietnam.
What events led to the General Agreement on Tariffs and Trade? Why did the World Trade Organization eventually replace GATT?
The Great Depression and the Smoot-Hawley Tariff; Trade in services and in products incorporating intellectual property grew in importance.
In what sense has the U.S. workforce adapted more slowly than expected?
The United States was slow to retrain its workers with new skills.
In November 2018, the exchange rate between the Japanese yen and the U.S. dollar was ¥113.34 = $1 and the exchange rate between the British pound and the U.S. dollar was £0.78 = $1. The exchange rate between the yen and the pound was 145.31 yen per pound. (Enter your response rounded to two decimal places.)
The exchange rate between the yen and dollar in December 2018 was ¥112.74 = $1. Compared to the November 2018 exchange rate, the dollar depreciated against the yen. The exchange rate between the pound and dollar in December 2018 was £0.79 = $1. Compared to the November 2018 exchange rate, the dollar appreciated against the pound. When the exchange rate between the yen and dollar becomes ¥112.74 = $1 and the exchange rate between the pound and dollar becomes £0.79 = $1 in December 2018, then, compared to November 2018, the yen has appreciated against the pound.
f repealing the program is "an easy call" as the editorial asserts, why was the program still in place in 2017, more than a year after the editorial was published?
The program's benefits are concentrated.
in 2017, an article on bloomberg.com had the following headline: "The Australian Dollar's Outlook Darkens." The article stated that: "The march of the Fed toward higher U.S. interest rates has also been a factor sapping optimism toward the Aussie [dollar]. Briefly explain the article's reasoning.
When U.S. interest rates rise, the value of the Australian dollar decreases because investors demand fewer Australian dollars.
Every year, the Gallup poll asks a sample of people in the United States whether they believe foreign trade provides "an opportunity for economic growth through increased U.S. exports," or whether they believe foreign trade represents "a threat to the economy from foreign imports." The table shows the responses for two years. Which of the following statements is most true?
When trade occurs, countries are better off, but some individuals may be worse off.
A student makes the following argument: "Tariffs LOADING... on imports LOADING... of foreign goods into the United States will cause the foreign companies to add the amount of the tariff to the prices they charge in the United States for those goods. Instead of putting a tariff on imported goods, we should ban importing them. Banning imported goods is better than putting tariffs on them because U.S. producers benefit from the reduced competition and U.S. consumers don't have to pay the higher prices caused by tariffs."
Which line represents the price of goods with tariffs? Pus Which line represents the price of goods without trade? Pnt Is the student's reasoning correct or incorrect? incorrect
Which of the following statements is true about the importance of trade in the U.S. economy?
While exports and imports have been steadily rising as a fraction of GDP, not all sectors of the U.S. economy have been affected equally by international trade.
Which of the following statements is true for Tazania with trade?
With trade, Tanzania is producing on its PPF but not consuming on its PPF
If Amazon did not have operations in foreign countries, would its profit be affected in any way by fluctuations in the exchange value of the U.S. dollar? Briefly explain
Yes, because fluctuations in the exchange rate would still affect the prices of international competitors.
Does his observation apply to tariffs? Briefly explain.
Yes, his observation predicts that Congress will be hesitant to eliminate tariffs.
dollar APPRECIATED against yen Which of the following events could have caused the shift in demand shown in the graph? 1. Interest rates in the United States have declined. 2. Income rises in Japan. 3. Speculators begin to believe the value of the dollar will be higher in the future.
2 and 3
A columnist for bloomberg.com offers the following observation about economic legislation: "history shows that concentrated opposition beats diffuse support every time."
A few passionate opponents are more influential than many tepid supporters.
What is a quota?
A numerical limit a government imposes on the quantity of a good that can be imported into a country.
Which of the following factors cause both the demand curve and the supply curve for dollars in the foreign exchange market to shift?
changes in the expectations of currency traders about the likely future value of the dollar and the likely future value of foreign currencies B. changes in the desire of investors to invest in the United States and changes in the desire of investors to invest in foreign countries C. changes in the demand for U.S.-produced goods and services and changes in the demand for foreign produced goods and services
If the U.S. firms succeed in having tariffs imposed on imports of steel,
consumers will lose as steel prices rise but domestic steel firms will gain.
What is the name given to the sale of a product for a price below its cost of production?
dumping
Do domestic producers of beef gain or lose when the United States imposes a tariff on beef? Gain d. Does the government gain or lose when the United States imposes a tariff on beef? Gain Do domestic consumers of beef gain or lose when the United States imposes a tariff on beef? Lose
gThe United States produces beef and also imports LOADING... beef from other countries. The graph to the right shows the supply and demand for beef in the United States, under the assumption that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase.
In what circumstances can natural food firms located elsewhere overcome these advantages? Boulder's advantages ARE likely to persist over time.
By convincing consumers that the quality and variety of the goods and services it sells are worth paying higher prices
How does the U.S. government protect steelworkers in West Virginia at the expense of steelworkers in South Korea?
By imposing a tariff on steel imports, the government protects U.S. steelworkers by reducing imports; however, that means South Korea is exporting less steel, which hurts steelworkers there.
Typically polls show that people in the United States under 30 years of age have a more favorable opinion of foreign trade than do people age 65 and over did. Younger people might have a more favorable view of foreign trade than older people because
younger people have less career risk as a result of trade policy.
Would it have been cheaper for the federal government to have raised taxes on U.S. consumers and given the money to tire workers rather than to have imposed a tariff?
Yes, because Hufbauer and Lowry concluded that the tariff cost U.S. consumers more than $900,000 per year for each job saved in the tire industry.
f the government wants to protect import competing industries and its workers from foreign competition, it can impose a tax on imports called a TARIFF Another restriction with a similar outcome would be to impose a limit on the amount of a specific good that can be imported. This restriction is called a QUOTA Which of the following is not a non-tariff barrier to trade?
Ad valorem tax on imports
What is a voluntary export restraint?
An agreement negotiated between two countries that places a numerical limit on the quantity of a good that can be imported by one country from the other country.
Which of the following factors may explain why a country like the Netherlands is more likely to import and export larger fractions of its GDP than would a larger country, such as China or the United States?
ALL The Netherlands is a small country with a level of GDP that is only a small fraction of that of China or the U.S. Given its small size, the Netherlands must specialize in producing and exporting only a few products; it cannot produce the wide range of products that China or the U.S. can produce. The Netherlands must rely on imports for a large range of products.
Choose the correct answer that might refer to "economic nationalism."
ALL The use of non-tariff barriers to protect domestic industries. B. The use of tariffs to protect domestic industries. C. The use of quotas to protect domestic industries.
f sugar protectionism has the bad effects as stated in the editorial, which of the following is a likely reason why Congress and the president do not eliminate it?
ALL There is little political support for the elimination of the quota. B. Sugar growers have a very strong lobby in Washington. C. Consumers are unaware of the existence of the quota.
Globalization is the process of countries becoming more open to foreign TRADE AND INVESTMENT Some people are opposed to globalization because they
ALL believe globalization destroys the distinctive cultures of many countries. want to erect trade barriers to protect domestic firms from foreign competition. believe globalization favors the interests of high-income countries at the expense of low-income countries