ECON CHP 9

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.

Refer to the graph to the right about the market for lumber in the United States. The graph shows the effect of a​ $0.50 per board foot tariff on lumber. What is the quantity of lumber supplied​ (in thousands of board​ feet) by domestic producers after the​ tariff? What is the reduction in U.S. lumber consumption​ (in thousands of board​ feet) as a result of the​ tariff?

900 100

The graph at right shows the effect on consumer​ surplus, producer​ surplus, government tariff​ revenue, and economic surplus of a tariff of​ $1 per unit on imports of plastic combs into the United States. Use the areas denoted in the graph to answer the following questions. Which​ area(s) shows the total loss to U.S. consumers as a result of the tariff on​ combs? Which​ area(s) shows the amount of surplus transferred from consumers to producers as a result of the tariff on​ combs? Which​ area(s) show the deadweight loss to the U.S. economy as a result of the tariff on​ combs?

A B C D A B D

The graph at right shows the situation after the U.S. removes a tariff on imports of canned tuna. Which areas show the gain in consumer​ surplus? Which area shows the loss in producer​ surplus? Which area shows the loss in government tariff​ revenue? Which areas show the reduction in deadweight​ loss?

A B C D A C B D

Is free trade more likely to benefit a​ large, populous country or a small country with fewer​ people?

A small country with fewer people.

Consider the market for sugar in the United States depicted in the figure to the right. Assume the world price of sugar is ​$0.18 per​ pound, and at that price the United States can buy as much sugar as it wants without causing the world price to rise. Now suppose a quota imposed by the government completely eliminates trade.

As a result of the quota​, consumers will be off in terms of consumer surplus

_____ is a situation in which a country does not trade with other countries. The _____ is the ratio at which a country can trade its exports for imports from other countries. By​ trading, countries are able to consume more than they could without trade. This outcome is possible because

Autarky, terms of trade shifting production to the more efficient country—the one with the comparative advantage—increases total production. world production of both goods increases after trade. inefficiencies in resource allocation are reduced. Or all of the above

As illustrated in the diagram to the​ right, when a nation moves from autarky to free​ trade, economic surplus increases by the areas represented by

C+D

If both countries specialize completely by producing only that for which they have a comparative advantage and then​ trade, what would be the terms of trade that would benefit both​ countries?

Both countries would benefit from trade if the Philippines were to trade 20,000 bananas for 14,000 pineapples with Columbia.

Suppose the government is considering imposing either a tariff or a quota on canned peaches. Assume that the proposed quota has the same effect on the U.S. price of canned peaches as the proposed tariff. Use the graph at right to answer the following questions. If the government imposes a​ tariff, which area shows the government tariff​ revenue? If the government imposes a​ quota, which area shows the gain to foreign producers of canned​ peaches? Consumers of peaches would

C C be indifferent between a quota and a tariff because the outcomes are the same for them.

The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss​ (loss in economic​ surplus) from this tariff is illustrated by areas

C and D

Briefly explain how international trade increases a​ country's consumption. By specializing in the production of the goods and services in which they have a _____ ​advantage, countries allocate resources more efficiently. In other​ words, goods and services are produced at their lowest _____ cost and world output increases. Since countries are producing goods and services at different opportunity​ costs, _____ can be negotiated that will allow all countries to consume more with trade than in autarky.

Comparative Opportunity Terms of Trade

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, Great​ Britain, or the United​ States."

Disagree. Japan exports about​ 20% of its​ GDP, of the​ above, only the U.S. exports a smaller percentage.

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

The world is often described as having a global economy. How important is international trade to the United​ States?

In the​ U.S., exports are smaller fractions of GDP than in most other countries.

Alzuria and Narnia are two open economies that produce goods A and B. The productivity of workers in industry B in Narnia is higher than the productivity of the Alzurian workers producing B. This led industry experts to claim that Narnia should specialize in the production of B and export it to Alzuria in exchange for good A. Which of the​ following, if​ true, would strengthen the argument that Narnia should specialize in the production of B and export​ it?

Industry A in Narnia employs more people than it really needs.

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

Which of the following is an example of positive economic​ analysis?

Measuring the effect of the sugar quota on the U.S. economy.

​Source: U.S. Department of​ Commerce, Census​ Bureau, Economic Indicators Division. 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.

The United States is _____ in the world. International trade remains _____ to the United States than in most other countries.

One of the largest exporters; less important.

The use of trade barriers to shield domestic companies from foreign competition is called

Protectionism

To encourage the domestic production of soybean​ oil, the Indian government imposed a​ 20% tariff on the import of soybean oil. The world​ price, when the tariff was​ imposed, was​ (in terms of the Indian​ currency, rupees)​ Rs.1,000 per ton of oil. The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff. Suppose the Indian government replaced the​ 20% tariff imposed on the import of soybean oil with an import quota of 6 million tons. Which of the following will hold true once the quota is​ imposed?

The benefit that accrued to the government from the import tariff will get transferred to the foreign producers of soybean oil.

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?

The commentator in incorrect.

To encourage the domestic production of soybean​ oil, the Indian government imposed a​ 20% tariff on the import of soybean oil. The world​ price, when the tariff was​ imposed, was​ (in terms of the Indian​ currency, rupees)​ Rs.1,000 per ton of oil. The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff. Which of the following is most supported by the information​ given?

The deadweight loss because they are forced to buy from less efficient domestic producers is Rs.300 million.

Country Y exports a good to country X where it is sold at​ $15 per unit. The same good is sold in the home market at​ $17 per unit and in another market at a higher price still. Industry experts in country X claim that the good is being dumped and the government should intervene and protect the domestic industry. Which of the​ following, if​ true, would weaken the argument that dumping has​ occurred?

The demand for the good is much more elastic in country X than in the home country.

The primary difference between a quota and a voluntary export restraint​ (VER) is that

The quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations.

To encourage the domestic production of soybean​ oil, the Indian government imposed a​ 20% tariff on the import of soybean oil. The world​ price, when the tariff was​ imposed, was​ (in terms of the Indian​ currency, rupees)​ Rs.1,000 per ton of oil. The figure to the right shows the domestic supply and the level of imports before and after the imposition of the tariff. Suppose as result of the higher price of soybean​ oil, new domestic firms enter the​ market, causing an increase in the demand for Soybeans. Which of the following is the most likely implication of​ this?

The tariff revenue earned by the Indian government will decline.

The government of a country faced substantial pressure from different sectors to reduce tariffs. Many​ groups, including the​ media, were lobbying for an overall reduction in import tariffs imposed by the government. According to​ them, the country would gain if free trade were encouraged. While certain sectors reported increased exports after a reduction in trade​ restrictions, many firms went out of business in other sectors as imports increased. People who lost their jobs complained that the reduction in tariffs had done the nation more harm than good. Which of the​ following, if​ true, would support the claim of the people who lost their​ jobs?

The​ country's trading partners have not reduced their trade barriers.

Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.

This statement is​ false; the U.S. economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas.

What do most economists find to be the most persuasive argument in favor of​ protectionism?

Trade barriers protect infant industries that initially have relatively high costs.

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 Tanzania with​ trade?

With​ trade, Tanzania is producing on its PPF but not consuming on its PPF.

The United States produces beef and also imports 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. a. How much beef does the United States import at the world​ price(WP)? b. Now suppose that the United States imposes a tariff on beef of​ $0.50 a pound. How much beef is now​ imported? c. Do domestic producers of beef gain or lose when the United States imposes a tariff on​ beef? d. Does the government gain or lose when the United States imposes a tariff on​ beef? e. Do domestic consumers of beef gain or lose when the United States imposes a tariff on​ beef?

a. 500 million pounds of beef b. 200 million pounds of beef c. Gain d. Gain e. Lose

A student makes the following​ argument: ​"Tariffs on imports 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." Use the​ student's argument along with the corresponding graph to answer the following questions. a. Which line represents the price of goods with​ tariffs? b. Which line represents the price of goods without​ trade? c. Is the​ student's reasoning correct or​ incorrect?

a. Pus b. Pnt c. Incorrect

The opponents of globalization contend that

globalization destroys cultures

Dumping

is selling a product for a price below its cost of production.