Chapter 20

Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 2 cans tuna fish Tunata: 1 can baby formula ≡ 4 cans tuna fish a. In what product should each nation specialize? b. Would the following terms of trade be acceptable to both nations?

a. Canswicki should produce baby formula, and Tunata should produce tuna fish. b. i. 1 can baby formula ≡ 2½ cans tuna fish: Acceptable ii. 1 can baby formula ≡ 1 can tuna fish: Not acceptable iii. 1 can baby formula ≡ 5 cans tuna fish: Not acceptable

The domestic supply-and-demand diagram below represents a product in which the United States does not have a comparative advantage. a. What impact do foreign imports have on domestic price and quantity? The diagram below shows a protective tariff that eliminates part of the imports that exist at the world price, Pworld. b. What are the price-quantity effects of this tariff on the following? (Assume the country imposing the tariff is a small part of the world market.)

a. Imports reduce the domestic price, increasing consumption and decreasing domestic production b. Domestic consumers: Price will increase and quantity will decrease. Domestic producers: Price will increase and quantity will increase. Foreign exporters: Price will not change and quantity will decrease.

a. In 2018, manufacturing workers in the United States earned average compensation of $21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of $3.20 per hour. U.S. manufacturers can possibly compete if b. All manufacturing is not done in Mexico and other low-wage countries because

a. U.S. workers are more productive. b. of trade barriers.

a. The use of artificial trade barriers, such as tariffs and import quotas, b. Tariffs and import quotas can reduce unemployment in a U.S. import industry, but

a. can increase domestic output and employment in the short run, but that is not likely to last in the long run. b. foreign countries could impose nontariff barriers on U.S. goods, reducing jobs in an export industry.

a. Protective tariffs might reduce both the imports and the exports of the nation that levies tariffs because b. Import competition can lead to

a. other countries may follow with their own import tariffs b. quality improvements and cost reductions by American firms

a. Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." We import these toys from China because b. Consider the following statement: "The United States can make certain toys with greater productive efficiency than can China. Yet we import those toys from China." Which ideas of Adam Smith and David Ricardo are represented?

a. the United States has an absolute advantage in producing toys, but China has a comparative advantage in producing toys. b. China does not need Smith's absolute advantage to specialize in toys, rather it needs Ricardo's comparative advantage. Correct

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer? a. Are comparative-cost conditions such that the two areas should specialize? b. What is the total gain in apparel and chemical output that would result from such specialization? c. What are the limits of the terms of trade?

a. yes, china: apparel, US: chemicals b. apparel: 2 units, chemicals: 2 units c. 1, 2, 1, 2, 2, 2

We see quite a bit of international trade in the real world. And trade is driven by specialization. So why don't we see full specialization—for instance, all cars in the world being made in South Korea, or all the mobile phones in the world being made in China? Choose the best answer from among the following choices.

increasing opportunity costs

Suppose that the current international price of wheat is $6 per bushel and that the United States is currently exporting 30 million bushels per year. If the United States suddenly became a closed economy with respect to wheat, would the domestic price of wheat in the United States end up higher or lower than $6?

lower

American apparel makers complain to Congress about competition from China. Congress decides to impose either a tariff or a quota on apparel imports from China. Which policy would Chinese apparel manufacturers prefer?

quota