Eco Chapter 19

Suppose that a small island nation, Runau, had the imports and exports shown in the table for 2018 and 2019. By how much did its trade deficit change?

-5 million

Fill in the blanks to complete the passage about trade barriers to protect infant industries.

One argument for trade barriers is that domestic industries sometimes need trade protection while they develop the capacity to compete internationally. Unfortunately, however, for political reasons, trade barriers are harder to remove than they are to establish.

Which items represent the United States' main service exports?

Main Service Exports travel services education services financial services Not Main Service Exports construction services legal services

The tiny isolationist nations of Lorland and Zhangia are considering opening their borders to trade with each other. Both nations produce only two goods: smoothies and sandals. Currently, a worker in Lorland can produce 2 smoothies per day or 8 sandals per day, while a worker in Zhangia can produce 1 smoothie per day or 5 sandals per day. Using this information, please match each nation and good to the most accurate description.

the nation that will specialize in producing sandals once trading begins Correct label:Zhangia the nation that will specialize in producing smoothies once trading begins Correct label:Lorland the good that Lorland will import from Zhangia after trading begins Correct label:sandals the good that Lorland will export to Zhangia after trading begins Correct label:smoothies

Use the production possibilities frontiers (PPFs) for Mexico and the United States to fill in the blanks to complete the passage.

Mexico and the United States each produce both food and clothing, in the quantities shown. Mexico could produce 150 additional tons of food at the cost of 450 units of clothing, so its opportunity cost of 1 ton of food is 3 units of clothing. The United States could produce as many as 600 additional tons of food at the cost of 300 units of clothing, so its opportunity cost of 1 ton of food is .5 unit of clothing.

The figure shows the 2017 export and import totals (in billions of dollars) for trade between the United States and selected other nations. Calculate the U.S. trade balance with Mexico. For a surplus, enter a positive number; for a deficit, enter a negative number.

-69 (Since imports exceed exports, there is a trade deficit, meaning the trade balance is negative.)

If the tiny nation of Lorland devotes all its resources to strawberries, it can produce 16 strawberries per day. If it devotes all its resources to balloons, it can produce 80 balloons per day. These are the only goods that Lorland can produce. What is the opportunity cost of 1 balloon in Lorland?

.2

How many nations were signatories to the agreement that established the World Trade Organization (WTO)?

123 (The agreement is called the General Agreement on Tariffs and Trade. It was signed in 1995.)

The figure below depicts the impact of a quota in the market for tablet computers. Assume that a nation initially participates in free trade and enjoys a world price of PW = $160 per pair of tablet computer, but then an import quota equal to 5,000 - 3,000 = 2,000 is imposed, consequently reducing the welfare of domestic consumers by the total of areas A, B, PS, and F, which comes to $330,000. How much of that domestic consumer welfare will be captured by domestic producers?

150,000

Given that the production possibilities frontiers (PPFs) for Mexico and the United States are as shown, which of the options given is Mexico's best possible consumption outcome, assuming that it can trade with the United States using a 1:1 food-clothing ratio?

400 units of clothing and 500 tons of food (Mexico can achieve this outcome by producing 900 units of clothing and trading 500 of them for food.)

Which of these scenarios is the best example of dumping?

A Chinese company sells raw silk for $18 per kilogram domestically and for $5 per kilogram in India.

Fill in the blanks to complete the passage about import quotas.

A quota, like a tariff, has the effect of limiting imports. However, a quota is different in that it imposes no cost on the supplier. For this reason, suppliers will sometimes accept "voluntary" quotas to avoid having their goods be subject to tariffs.

Imagine a world with two countries, Amicia and Franconia, where people consume only cake and pie. Assume that an Amician worker takes 1.5 hours to make a cake and 1.5 hours to make a pie. Further, assume that a Franconian worker takes only 1 hour to make a cake but 2 hours to make a pie. Fill in the blanks to complete the table showing the opportunity cost of each production activity for each country.

Amicia 1 pie; 1 cake/pie Franconia 1/2 pie; 2 cakes/pie

The graph below depicts the impact of a tariff in the market for shoes. If a nation initially participates in free trade and enjoys a price of $100 per pair of shoes, then a 20% shoe tariff would reduce the welfare of domestic consumers by the total of areas A, B, PS, and T.Of these areas representing a loss to domestic consumers, click on the area(s) that do not represent a gain to any other group.

B, A (Area B represents deadweight loss due to the (QW - QT) shoes that will no longer be produced.)(Area A represents deadweight loss due to higher costs of producing (QD2 - QD1) shoes via domestic firms rather than more-efficient foreign firms.)

Identify two benefits of free trade due to increased competition.

Benefit(s) of Increased Competition Domestic firms become more innovative. Consumers have more options from which to choose. Not a Benefit of Increased Competition Government tax revenues increase. Workers at domestic firms earn higher wages.

Suppose Mexico's opportunity cost for producing 1 unit of food is 3 units of clothing and the United States' opportunity cost for producing 1 unit of food is 0.5 units of clothing. Trade at a ratio of 1:1 is beneficial to both countries. How beneficial would it be for Mexico if the trading ratio were 1 unit of clothing for every 2 units of food?

Better than 1:1 (Mexico, which specializes in clothing production, would get more food in return for each unit of clothing. It would get 2 units instead of the current 1 unit.)

Fill in the blanks to complete the passage about trade restrictions.

Both tariffs and quotas tend to reduce social welfare. That is, they increase prices for domestic consumers and decrease consumption of the restricted good. In some cases, such as the U.S. shoe market, tariffs on cheap goods hurt poor consumers the most, making the tariff an example of a regressive tax.

Two isolated nations, Alphaland and Betaton, are considering opening their borders to trade with each other. Both nations consume only two goods: salt and pepper. Alphaland can produce either 80 tons of salt per day or 5 tons of pepper per day, while Betaton can produce either 3 tons of salt per day or 1 ton of pepper per day. Which trade ratios would make both nations better off?

Correct Answer(s) 10 tons of salt for 1 ton of pepper 5 tons of salt for 1 ton of pepper Incorrect Answer(s) 2 tons of salt for 1 ton of pepper 20 tons of salt for 1 ton of pepper

Which of the following statements best explains the decrease in imports and exports that occurred between the United States and China immediately prior to the pandemic?

Correct Answer(s) Both the United States and China increased tariffs. Incorrect Answer(s) President Trump signed the USMCA, which replaced NAFTA. The United States imposed quotas on Chinese imports.

Suppose that Japan is considering placing trade restrictions on imports of U.S. pharmaceuticals. It could choose either a tariff or a quota, which would be designed to reduce imports by the same quantity. Which of these groups would be indifferent between the tariff and the quota?

Correct Answer(s) Japanese buyers of pharmaceuticals Japanese producers of pharmaceuticals Incorrect Answer(s) Japanese government U.S. producers of pharmaceuticals

Assume a hypothetical city in the United States at the start of the pandemic consumed 250 boxes of surgical gowns at a price of $120 per box. As the pandemic spread and U.S. demand surged, the United States removed the pre-pandemic tariffs on imported medical supplies. Which of the following statements about the city's consumption of surgical gowns during the pandemic would be correct, based on the graph below?

Correct Answer(s) The new equilibrium quantity will be 5,000 boxes. Government revenue will fall by $2,000. Incorrect Answer(s) The removal of the tariff will increase demand. The new equilibrium price for a box of gowns will be $100. The supply curve will shift to the left.

Imagine that the government of France imposes a tariff on imported wineglasses. (You may assume there was no tariff on wineglasses previously.) Which of these consequences would you expect to result from the new tariff?

Correct Answer(s) The price of wineglasses in France will increase. French government revenue will increase. French consumers will buy fewer wineglasses. Incorrect Answer(s) Total welfare in France will increase. French producers will sell fewer wineglasses.

Considering only the nations in the figure below, the largest U.S. trade surplus for 2017 is with China.

FALSE (In the figure above, the only nations with which the United States does not have a trade deficit are Canada and the United Kingdom.)

Drag each nation to its correct position in the graph to show the total value of U.S. goods exported to and imported from that nation in 2017.

FIGURE 19.3

This figure depicts the growth of U.S. trade for services only between 1970 and 2017, as a percentage of U.S. GDP. Please label the "exports" and "imports" lines appropriately.

Figure 19.2 Exports -blue; Imprts -red

Fill in the labels so that the graph describes supply, price, and quantity in an economy completely closed to imports, an economy with free trade, and an economy with tariffs on imports.

Figure 19.6

Fill in the blanks to complete the passage about the U.S. trade balances in goods and services.

From the graphs above, it is evident that the United States imports about 50% more in goods than it exports, but exports about 50% more in services than it imports. It is also evident, from a comparison of the vertical scales, that the United States imports about four times as much in goods as in services and that it exports about twice as much in goods as in services.

Imagine that the United States and Mexico produce only sugar and oil. The United States can produce a barrel of oil at an opportunity cost of 2 tons of sugar, whereas Mexico can produce a barrel of oil at an opportunity cost of 3 tons of sugar. Fill in the blanks to complete the passage.

If Mexico and the United States faced these opportunity costs, then to benefit from trade Mexico should specialize in producing sugar. That is, the United States would use some of the oil it produces and export the rest to Mexico in exchange for sugar. In order for the trade to be beneficial to both nations, the trade ratio must be between 2 and 3 tons of sugar per barrel of oil.

Match each of the following motivations for trade restrictions to the argument against that reason.

In practice, tariffs are often used to limit imports from friendly nations. Correct label:national security interests Regardless of how many producers benefit from trade restrictions, even more consumers will be hurt because of higher prices Correct label:favors to special interests Well-established industries are able to lobby for trade restrictions to stay in place.protecting Correct label:protecting infant industries

Which of these are reasons for the intense increase in international trade that has occurred over the last 75 years?

Reason(s) reduced trade barriers increased specialization among nations lower shipping costs Not a Reason higher tariffs increased use of quotas

Fill in the blanks to complete the following passage concerning the U.S. balance of trade, based on the figure.

Since at least 1975, the United States has had a negative balance of trade, also known as a trade deficit. However, it is clear that this trend is driven primarily by only one of the components of U.S. trade. If the distinction is made between the trade of goods versus the trade of services, it turns out that the United States enjoys a trade surplus for services, but a trade deficit for goods.

The graph below depicts the impact of a tariff in the market for shoes. If a nation initially participates in free trade and enjoys a price of $100 per pair of shoes, then a 20% shoe tariff would reduce the welfare of domestic consumers by the total of areas A, B, PS, and T.Of these areas representing a loss to domestic consumers, click on the area(s) that would become a gain to foreign producers if the tariff were replaced with a quota for the same quantity of imports.

T

If the United States imposes new tariffs on foreign car imports, domestic manufacturers will sell more cars.

TRUE

When nations specialize their production processes and engage in international trade, firms in those economies often are able to enjoy lower per-unit costs as production expands.

TRUE

Fill in the blanks to complete the following passage concerning the North American Free Trade Agreement.

The United States signed the North American Free Trade Agreement (NAFTA) in 1992. This agreement eliminated nearly all trade restrictions among the United States, Mexico, and Canada. Since its signing, real U.S. imports and exports with both nations have doubled.

Fill in the blanks to complete the passage about international trade and specialization.

The citizens of Sealand like both fish and cookies. So do the citizens of Molossia. Each country can produce both goods, but the countries can also trade with each other. If Molossia has a higher opportunity cost of producing fish than Sealand does, then Molossai has a comparative advantage in producing cookies. Molossia should produce cookies, and it should trade for fish.

Fill in the blanks to complete the following passage concerning globalization.

The increasing interdependence of national economies is the essence of globalization. Between 1970 and 2017, world trade doubled as a percentage of world GDP. World trade equaled 11% of world GDP in 1970 and 22% by 2017.

How does a country's business cycle generally affect the international trade balance?

The trade deficit tends to shrink during economic downturns.

Fill in the blanks to complete the passage about Nicaragua's economy.

To grow its way out of poverty, Nicaragua has established "free zones" where companies can produce goods for export and avoid the various corporate taxes that apply to goods produced for the domestic market. Several U.S. apparel companies have taken advantage of the opportunity to manufacture goods in an environment with reduced production costs. But while these businesses employ Nicaraguan workers, they do not produce goods available to Nicaraguan consumers.

Fill in the blanks to complete the passage about the effects of trade barriers.

Trade barriers protect domestic producers from foreign competition, but the protection comes at the expense of consumers, who pay higher prices for the same goods. The effect is much the same as if a tax had been imposed to transfer money from consumers to a special interest group consisting of producers in a single industry.

Which of these statements regarding U.S. trade were true as of 2017?

True The majority of U.S. goods imports come from fewer than ten nations. The United States has an overall trade deficit. Not True The largest U.S. trading partner in terms of goods imports is also its largest trading partner in terms of goods exports. All U.S. trading partners contribute roughly the same amount to U.S. imports. The United States has a trade deficit with every single nation it trades with.

Match each good to its status in U.S. trade with Canada and Mexico. Each good will be matched more than once.

a major export to Mexico Correct label:meat a major import from Canada Correct label:natural gas Correct label:meat a major export to Canada Correct label:agricultural products a major import from Mexico Correct label:gold Correct label:meat