Microeconomics Lecture #8

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. The potential for other governments to subsidize firms, enabling them to charge lower prices than domestic firms can. A. Arguments for limiting international trade with protectionism B. Arguments for promoting international trade

A. Arguments for limiting international trade with protectionism

Suppose the accompanying graph depicts the market for sugar in a hypothetical country. Suppose the country opens trade with the world sugar market and becomes a sugar exporter. After trade opens, what price will Costa Ricans pay for a pound of sugar?

$21

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. The ability of a nation to consume more than it can produce domestically. A. Arguments for promoting international trade B. Arguments for limiting international trade with protectionism

A. Arguments for promoting international trade

Suppose that the isolated nation of Turkmenistan decides to open up trade with the world market and becomes an importer of wheat. After opening up trade, domestic producer surplus A. Decreases B. Doesn't change C. Increases

A. Decreases

Several arguments exist supporting the use of protectionism. Classify each of the statements according to which argument is being used. Some industries should be protected until domestic firms emerge as industry leaders, at which point protectionist policies may be removed. A. The infant industry argument B. The national interest argument C. The race to the bottom argument D. The unsafe consumer products argument

A. The infant industry argument

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. Job loss in some labor markets. / Worries about domestic labor markets. A. Arguments for promoting international trade B. Arguments for limiting international trade with protectionism

B. Arguments for limiting international trade with protectionism

The world price of grapefruit is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? Consumer surplus in Cuba will A. Increase B. Decrease C. Not change

B. Decrease

Suppose that Swaziland decides to open trade with the world market for Coca-Cola and becomes an importer. After the opening of trade, the price per can of Coca-Cola for the domestic consumer A. Increases B. Decreases C. Does not change

B. Decreases

Several arguments exist supporting the use of protectionism. Classify each of the statements according to which argument is being used. Globalization causes environmental degradation as countries choose increasingly lower environmental standards to attract industry. A. The infant industry argument B. The national interest argument C. The race to the bottom argument D. The unsafe consumer products argument

C. The race to the bottom argument

The race to the bottom argument

Countries will decrease environmental standards to attract industry to their country, causing environmental quality worldwide to diminish.

The graph shows the domestic demand and domestic supply for soybeans. Assume this country is open to international trade, that soybeans are a perfectly competitive good, and that the world price of soybeans is $30. Suppose a tariff of $10 is imposed. What price will result in this country?

Since soybeans are assumed to be traded internationally, the initial price domestically is equivalent to the world price. A $10 tariff increases the price of soybeans domestically. Price: $40

The unsafe consumer products argument

Imported goods are not subject to the same standards of production as domestic goods and, therefore, are potentially unsafe for consumers.

Several arguments exist supporting the use of protectionism. Classify each of the statements according to which argument is being used. Differences in standards of production across trading partners make it unwise to have certain goods imported. A. The infant industry argument B. The national interest argument C. The race to the bottom argument D. The unsafe consumer products argument

D. The unsafe consumer products argument

The graph depicts a market where a tariff is introduced. Pw represents the world price, and Pt represents the domestic price that results from the introduction of the tariff, with the tariff equal to the difference between Pt and Pw. What area or areas represents the deadweight loss associated with the tariff?

C and F These areas depict the reduction in surplus resulting from fewer imports that are sold at the lower world price.

Suppose that the isolated nation of Turkmenistan decides to open up trade with the world market and becomes an importer of wheat. After opening up trade, domestic consumer surplus A. Decreases B. Doesn't change C. Increases

C. Increases

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. The national defense argument. A. Arguments for limiting international trade with protectionism B. Arguments for promoting international trade

A. Arguments for limiting international trade with protectionism

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. Changes in productivity associated with specialization. A. Arguments for limiting international trade with protectionism B. Arguments for promoting international trade

B. Arguments for promoting international trade

The world price of grapefruit is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? Producer surplus in Cuba will A. Decrease B. Not change C. Increase

C. Increase

The table shows the hypothetical demand and supply for coffee beans in two countries: Indonesia and Armenia. Equilibrium price in Indonesia:

Equilibrium price: $4

The table shows the hypothetical demand and supply for coffee beans in two countries: Indonesia and Armenia. Equilibrium price in Armenia:

Equilibrium price: $7

Which is NOT an effect of a tariff? A. Deadweight loss B. Increased demand C. A domestic market price above world market price D. Decreased imports

Immediate result of the tariff will be a domestic price higher than world price. B. Increased demand

Match each trade organization or agreement with its description. An agreement between over 25 nations, which abolished tariffs among member countries and standardized policies on agriculture, transportation, and business practices. A. The European Union B. North American Free Trade Agreement C. World Trade Organization

A. The European Union

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Colby lives in the United States and purchases a video game produced in Japan. A. Import B. Export C. Neither

B. Import

The world price of grapefruit is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? The price of domestic Cuban grapefruit for consumers will A. Decrease B. Increase C. Not change

B. Increase

Several arguments exist supporting the use of protectionism. Classify each of the statements according to which argument is being used. Protectionism is justified when a product is required for the safety or security of the domestic population. A. The infant industry argument B. The national interest argument C. The race to the bottom argument D. The unsafe consumer products argument

B. The national interest argument

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Michelle lives in Tennessee and buys an orange grown in Florida. A. Import B. Export C. Neither

C. Neither

Which scenario describes the operation of a tariff? A. Angola opens up trade with the world corn market and decides to maintain its previous market price. B. Consumers in Turkey, who pay $4 per cup of tea, demand that the government open up trade with the world market because they know the world price is $2 per cup. C. Norway becomes an exporter of fireworks after it opens up trade with the world market and realizes its market price is lower than the world price. D. Ireland taxes the import of potatoes in order to keep domestic farmers in business.

D. Ireland taxes the import of potatoes in order to keep domestic farmers in business.

Which of the choices is an example of offshore outsourcing? A. Apple, a California based company, employs thousands of workers in the state of Texas. B. The United States imports billions of dollars of goods from China each year. C. The United States sells billions of dollars of goods that are exported to other nations. D. Toyota, a Japanese car manufacturer, employs around 40,000 autoworkers in the United States.

D. Toyota, a Japanese car manufacturer, employs around 40,000 autoworkers in the United States.

The graph depicts a market where a tariff is introduced. Pw represents the world price, and Pt represents the domestic price that results from the introduction of the tariff, with the tariff equal to the difference between Pt and Pw. What area or areas represent the government revenue generated by the tariff?

E The height is equal to the size of the tariff. The base is equal to the number of units that are imported.

The table shows the hypothetical demand and supply for coffee beans in two countries: Indonesia and Armenia. Equilibrium quantity in Armenia:

Equilibrium quantity: 180 lb

The table shows the hypothetical demand and supply for coffee beans in two countries: Indonesia and Armenia. Equilibrium quantity in Indonesia:

Equilibrium quantity: 320 lb

Suppose that Swaziland decides to open trade with the world market for Coca-Cola and becomes an importer. Please adjust the accompanying graph to depict this new reality.

For Swaziland to become an importer of Coca-Cola, the world-market price must be lower than the domestic-market price.

Suppose the accompanying graph depicts the market for sugar in a hypothetical country. Suppose the country opens trade with the world sugar market and becomes a sugar exporter. In the accompanying graph, adjust the price line to depict how this impacts the market for sugar. Then, shade the area of consumer surplus using CS area and shade the area if producer surplus using the PS area.

For the country to become a sugar exporter, the world-market price must be higher than the domestic-market price.

Suppose that the isolated nation of Turkmenistan decides to open up trade with the world market and becomes an importer of wheat. Please shift the price on the accompanying graph to reflect this new reality.

Importation leads to a world-market price that is lower than the domestic-market price.

Suppose that Sakhalin, an island off the eastern coast of Russia, declares its independence and becomes an exporter of oil. True or False: As the country begins to export, producer surplus will increase.

True

The world price of grapefruit is above the price that currently prevails in Cuba in the absence of trade. Assuming that Cuba is a small economy compared to the rest of the world, what happens if Cuba decides to open up trade with the world grapefruit market? Cuban exports of grapefruits will A. Increase B. Decrease C. Not change

A. Increase

Match each trade organization or agreement with its description. Created a free-trade zone consisting of the United States, Canada, and Mexico with the purpose of eliminating trade barriers between these countries. A. North American Free Trade Agreement B. The European Union C. World Trade Organization

A. North American Free Trade Agreement

Suppose that Sakhalin, an island off the eastern coast of Russia, declares its independence and becomes an exporter of oil. True or False: Because the oil is produced domestically, residents of Sakhalin will pay less than the world price.

False

Suppose that Swaziland decides to open trade with the world market for Coca-Cola and becomes an importer. After trade opens, how many millions of cans of Coca-Cola will Swaziland import?

Quantity supplied: 3 million cans Quantity demanded: 7 million cans 7 million cans - 3 million cans = 4 million cans

Although both tariffs and quotas are tools used to restrict or reduce trade, which of the statements best describes their differences? A. Tariffs are a tax on exported goods, and quotas are limits on the number of exported goods. B. Tariffs are a subsidy for exported goods, and quotas act as a minimum limit of exports. C. Quotas are a tax on imported goods, and tariffs are a tax on imported goods. D. Tariffs are a tax on imported goods, and quotas are limits on the number of imported goods. E. Tariffs are a tax on imported goods, and quotas are limits on the number of exported goods.

D. Tariffs are a tax on imported goods, and quotas are limits on the number of imported goods.

Suppose that Sakhalin, an island off the eastern coast of Russia, declares its independence and becomes an exporter of oil. True or False: Even after trade is open, the producer surplus and consumer surplus will be equal.

False

Suppose that Sakhalin, an island off the eastern coast of Russia, declares its independence and becomes an exporter of oil. True or False: In order for oil producers in Sakhalin to decide to export, the world price must be below the domestic price.

False

Which of the choices describes how the effects of import tariffs and import quotas are different? A. Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. B. The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. C. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity. D. Some foreign producers receive some of the benefits generated by an import quota.

Foreign producers are able to charge a higher price for their goods to domestic consumers. Foreign producers receive the equivalent amount of the tariff revenue in the form of a quota rent. D. Some foreign producers receive some of the benefits generated by an import quota.

The graph depicts a market where a tariff is introduced. Pw represents the world price, and Pt represents the domestic price that results from the introduction of the tariff, with the tariff equal to the difference between Pt and Pw. What is the quantity of imports after the introduction of the tariff?

Quantity demanded: 12 units Quantity supplied: 8 units Quantity of imports: 12 units - 8 units = 4 units

The graph shows the domestic demand and domestic supply for soybeans. Assume this country is open to international trade, that soybeans are a perfectly competitive good, and that the world price of soybeans is $30. After the tariff is imposed, how many units of soybeans will be imported?

Quantity demanded: 60 units Quantity supplied: 40 units 60 units - 40 units = 20 units

Suppose the accompanying graph depicts the market for sugar in a hypothetical country. Suppose the country opens trade with the world sugar market and becomes a sugar exporter. How much sugar will Costa Rica export after trade is opened?

Quantity supplied: 140 lbs Quantity demanded: 60 lbs 140 lbs - 60 lbs = 80 lbs

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. Chevron drills for oil in the United States and sells this oil to refineries in Brazil and Mexico. A. Export B. Import C. Neither

A. Export

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. A farmer in Iowa sells corn to a good processing plant in China. A. Import B. Export C. Neither

B. Export

Identify whether the given items are examples of imports, exports, or neither. Assume the United States is considered the domestic country. A Chinese consumer purchases a television produced in China. A. Import B. Neither C. Export

B. Neither

Match each trade organization or agreement with its description. Oversees trade agreements among over 150 member nations and arbitrates trade disagreements among member countries. A. The European Union B. North American Free Trade Agreement C. World Trade Organization

C. World Trade Organization

The national interest argument

Certain goods are too important to be imported. Goods that relate to national security such as oil or food, are sometimes supported by protectionism because of national security concerns.

Suppose the accompanying graph depicts the market for sugar in a hypothetical country. Suppose the country opens trade with the world sugar market and becomes a sugar exporter. What is the value of producer surplus that exists after trade is opened?

Producer surplus = ($21 x 140) / 2 = $1,470

International trade is the subject of much debate. Many economists favor encouraging international trade, sighting the gains from trade. However, there are economic arguments for limiting international trade through protectionism. Classify each statement below in the appropriate category. The infant industry argument. A. Arguments for promoting international trade B. Arguments for limiting international trade with protectionism

Protectionism can be used for a limited time to help an industry develop and then stopped later on. B. Arguments for limiting international trade with protectionism

The infant industry argument

Protectionism is justified in the short run while domestic firms develop into industry leaders.