ECON CH. 2 Q'S
Approximately what percent of all world production of goods and services is exported to other countries?
30%
In 2013, what percent of all world consumption (private and public, including real investment) was imported?
30%
A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world trade?
A century ago trade was mostly in commodities that were not produced in Europe. Today, 61 percent of trade is in manufactured goods, and as the gravity model predicts, Britain trades with the other large European economies.
Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada's is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia's. Why should this be the case?
A. Canada's GDP is approximately double that of Australia's. B. Canada is a member of the World Trade Organization while Australia is not. C. Australia's GDP is very large; therefore, its volume of trade relative to GDP would be expected to be small. **D. Transportation costs for imports and exports are higher in Australia because the distance goods must travel.** **E. Canada is close to a major economy.**
In general, which of the following tends to promote the probability of trade volumes between two countries?
A. Sizes of economies. B. Mutual membership in preferential trade agreements. C. Historical ties. D. Linguistic and/or cultural affinity. E. All of the above.
Why does the gravity model work?
Large economies tend to have large incomes and tend to spend more on imports.
Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade--that is, trade among East Asian nations--has grown as a share of world trade. More than that, East Asian countries do an increasing share of their trade with each other. Using the gravity model, explain why East Asian countries do an increasing share of their trade with each other.
Since the GDP of East Asian countries has grown, the product of any two East Asian countries' GDP is now larger. And as the gravity model predicts, the trade volume between them has grown.
The two neighbors of the United States do a lot more trade with the U.S than European economies of equal size.
This is consistent with predictions from gravity models.
(pt. 1) Mexico and Brazil have very different trading patterns. Mexico trades mainly with the United States and Brazil trades about equally with the United States and with the European Union. Mexico does much more trade relative to its GDP. These differences can be explained via the gravity model. Which of the following equations is the most general form of the gravity model?
Tij = A * (Yia * Yjb)/Dijc
(pt. 2) Evaluate the following statement: Mexico is quite close to the U.S., but it is far from the European Union (E.U.). So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. Do you agree or disagree? Based on the gravity model, I would
agree. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and inversely related to the distance from each other.
A century ago each country's exports were shaped largely by
climate and natural resources.
The sources of modern trade are largely rooted in
country differences in human and human-created resources.
The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that
expounds principles still valid in today's world.
Since World War II (the early 1950s), the proportion of most countries' production being used in some other country
increased.
The current process of increasing economic integration among national economies, better known as globalization,
is actually the world's second wave of such integration.
In the current Post-Industrial economy, international trade in services (including banking and financial services)
is relatively small.
In the early 20th century, the UK exported mainly
manufactured goods.
In the present, most of the exports from China are
manufactured goods.
In the present, most of the exports from China are in
manufactured goods.
According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is
the distance between them.
The nature of political battles over trade in the modern era
typically centers on issues involving the trade-induced devaluation of labor skills.
