ECON CH. 2 Q'S

Approximately what percent of all world production of goods and services is exported to other countries?

30%

In​ 2013, what percent of all world consumption​ (private and​ public, including real​ investment) was​ imported?

30%

A century​ ago, most British imports came from relatively distant​ locations: North​ America, Latin​ America, and Asia. ​ Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world​ trade?

A century ago trade was mostly in commodities that were not produced in Europe.​ Today, 61 percent of trade is in manufactured​ goods, and as the gravity model​ predicts, Britain trades with the other large European economies.

Canada and Australia are​ (mainly) English-speaking countries with populations that are not too different in size​ (Canada's is 60 percent​ larger). But Canadian trade is twice as​ large, relative to​ GDP, as​ Australia's. Why should this be the​ case?

A. ​Canada's GDP is approximately double that of​ Australia's. B. Canada is a member of the World Trade Organization while Australia is not. C. ​Australia's GDP is very​ large; therefore, its volume of trade relative to GDP would be expected to be small. **D. Transportation costs for imports and exports are higher in Australia because the distance goods must travel.** **E. Canada is close to a major economy.**

In general, which of the following tends to promote the probability of trade volumes between two countries?

A. Sizes of economies. B. Mutual membership in preferential trade agreements. C. Historical ties. D. Linguistic and/or cultural affinity. E. All of the above.

Why does the gravity model work?

Large economies tend to have large incomes and tend to spend more on imports.

Over the last few​ decades, East Asian economies have increased their share of world GDP.​ Similarly, intra-East Asian trade--that ​is, trade among East Asian nations--has grown as a share of world trade. More than​ that, East Asian countries do an increasing share of their trade with each other. Using the gravity​ model, explain why East Asian countries do an increasing share of their trade with each other.

Since the GDP of East Asian countries has​ grown, the product of any two East Asian​ countries' GDP is now larger. And as the gravity model​ predicts, the trade volume between them has grown.

The two neighbors of the United States do a lot more trade with the U.S than European economies of equal size.

This is consistent with predictions from gravity models.

(pt. 1) Mexico and Brazil have very different trading patterns. Mexico trades mainly with the United States and Brazil trades about equally with the United States and with the European Union. Mexico does much more trade relative to its GDP. These differences can be explained via the gravity model. Which of the following equations is the most general form of the gravity​ model?

Tij = A * (Yia * Yjb)/Dijc

(pt. 2) Evaluate the following​ statement: Mexico is quite close to the​ U.S., but it is far from the European Union​ (E.U.). So it makes sense that it trades largely with the U.S. Brazil is far from​ both, so its trade is split between the two. Do you agree or​ disagree? Based on the gravity​ model, I would

agree. The gravity model predicts trade volume is proportional to the product of the GDPs of the trading partners and inversely related to the distance from each other.

A century ago each​ country's exports were shaped largely by

climate and natural resources.

The sources of modern trade are largely rooted in

country differences in human and​ human-created resources.

The Ricardian trade model put forth by British economist David Ricardo nearly two centuries ago is one that

expounds principles still valid in​ today's world.

Since World War II​ (the early​ 1950s), the proportion of most​ countries' production being used in some other country

increased.

The current process of increasing economic integration among national​ economies, better known as​ globalization,

is actually the​ world's second wave of such integration.

In the current​ Post-Industrial economy, international trade in services​ (including banking and financial​ services)

is relatively small.

In the early 20th century, the UK exported mainly

manufactured goods.

In the present, most of the exports from China are

manufactured goods.

In the​ present, most of the exports from China are in

manufactured goods.

According to the gravity model, a characteristic that tends to affect the probability of trade existing between any two countries is

the distance between them.

The nature of political battles over trade in the modern era

typically centers on issues involving the​ trade-induced devaluation of labor skills.