ECON 1110 Reading Check Chpt 8-9

Congressman Smith cites the "jobs argument" when he argues in favor of restrictions on trade; he argues that everything can be produced at lower cost in other countries. The likely flaw in Congressman Smith's reasoning is that he ignores the fact that

the gains from trade are based on comparative advantage.

Trade enhances the economic well-being of a nation in the sense that

trade results in an increase in total surplus

Refer to Figure 9-25. Suppose the government imposes a tariff of $5 per unit. The deadweight loss caused by the tariff is

$100

Refer to Figure 8-5. After the tax is levied, consumer surplus is represented by area

A.

Refer to Figure 8-5. Producer surplus before the tax was levied is represented by area

D+H+F.

Refer to Figure 8-1. Suppose the government imposes a tax of P' - P'''. Total surplus before the tax is measured by the area

I+J+K+L+M+Y.

Assume, for Japan, that the domestic price of automobiles without international trade is lower than the world price of automobiles. This suggests that, in the production of automobiles,

Japan has a comparative advantage over other countries and Japan will export automobiles.

In analyzing the gains and losses from international trade, to say that Moldova is a small country is to say that

Moldova is a price taker.

When a country allows trade and becomes an exporter of a good,

domestic producers gain and domestic consumers lose.

If the Korean steel industry subsidizes the steel that it sells to the United States, the

harm done to U.S. steel producers is less than the benefit that accrues to U.S. consumers of steel.

Refer to Figure 9-24. With free trade, the country

imports 20 units of the good.

Refer to Figure 9-8. In the country for which the figure is drawn, total surplus with international trade in cars

is larger than total surplus without international trade in cars.

When the government imposes taxes on buyers or sellers of a good, society

loses some of the benefits of market efficiency.