Q & A for Chapter 16 - International Trade

List the reasons that nations trade with one another.

- Nations trade with one another because they believe that the products they receive are worth more than the products they receive are worth than the products they give up. -A more important reason for trade is specialization. When people specialize, they produce the things they do best and exchange those products for the things that other people do best. -International trade is important to all nations, even a country as large as the United States. However, trade in services such as banking and insurance is increasing.

Suppose a nation has a great deal of human capital but few natural resources. In what kinds of products might the nation specialize?

A nation can specialize on products which do not need natural resources as raw materials. For example, electronics and gadgets. Raw materials for these products can be imported from neighboring countries. Also, the country can specialize in businesses needing more manpower like construction and outsource-based businesses.

Describe what is meant by a strong or weak dollar, and how each affects the prices of imports and exports.

A strong dollar is when a country's currency is appreciating and a weak dollar is when it's depreciating. A strong dollar will cause exports to be more expensive in other countries and imported goods be less expensive for that country.

What arguments does Hubbard make in support of DR-CAFIA?

He argues that the level playing field created by the pact would benefit US consumers and business.

Why did Yang begin organizing Internet sites?

He wanted to search sites on the internet so he could do research but got frustrated by the chaos of info on the web.

You are planning to travel to Canada next week and have just learned that the Canadian dollar has weakened. Is this good news or bad news? Explain your answer.

I think that for the tourists this news is good, because they can now for the same amount of US dollars that they have planned to spend in Canada, buy more Canadian dollars, because it has weakened.

Look at Figure 16.3 on page 444. What would happen to total output if Alpha preferred growing cashew nuts and Beta specialized in coffee?

If alpha prefers to grow cashew nuts, and beta specializes in coffee, then specialization and trade would increase the world's output. Both countries produce 25 cups of coffee and 5 cups of cashews without trade. After trade, the world's output rose to 40 coffees and 6 cashews.

What would happen if the United States lost its comparative advantage in producing soybeans?

If the US loses its comparative advantage in producing soybean that implies its opportunity cost of producing soybean will increase. Thus, to keep the optimal level of soybean production maintained at the international level, the US will have to give up soybean production and become an importer of this product.

Why does total world output increase as countries specialize to engage in trade?

If we look at the final result of trade between Alpha and Beta, we can see that specialization and trade increased the total world output. Without trade, both countries together produced 25 coffee and 5 cashews. After trade, total world output grew to 40 coffee and 6 cashews. This explains why countries such as the United States and Colombia trade. The United States has the necessary resources to produce farm equipment efficiently, while Colombia has the resources to produce coffee efficiently. Because each country has a comparative advantage in a product the other country wants, trade will be beneficial to both.

How do specialization and trade benefit both trading partners?

If you want to find out what a country specializes in, look at its exports—the goods and services that it produces and sells to other nations. If you want to see what a country would like to have but does not produce as efficiently, look at its imports—the goods and services that one country buys from other countries. States also specialize. For example, New York is a financial center for stocks and bonds, while automobiles are a major industry in Michigan. Texas is known for oil and cattle, while Florida and California are famous for citrus fruit. Countries specialize in different goods and services in much the same way.

How does the organization of Virgin Group differ from that of most other corporations?

The Virgin group differed from most corporations in that it was organized in small groups. Brandon decided to create many individual companies united under the Virgin brand. The company decided to expand into a much wider geographic area in order to acquire a more varied range of products.

What does the theory of comparative advantage suggest that countries should do?

The classic theory of comparative advantage suggests that each country should specialize in those areas where it can produce more efficiently than other countries, and it should trade for goods and services that it can't produce as economically.

Identify the basic assumption supporting the theory of comparative advantage.

The concept of comparative advantage is based on the assumption that everyone will be better off specializing in the product they produce best

How do comparative advantage and absolute advantage differ? Use examples to support your comparison.

Absolute advantage is the ability to produce a good using fewer inputs than another producer, while comparative advantage is the ability to produce a good at a lower opportunity cost than another producer (reflecting the relative opportunity cost).

How did Branson's business plan allow him to use comparative advantage?

Branson's business plan was to find markets that are either undeserved or lack competition, which allowed him to use comparative advantage because he sold his products at a lower rate.

How does China censor Internet traffic?

China has technologies and agencies watching over the internet, to catch and stop scammers and offensive content from surfacing the web.

Look at the cartoon on page 452. Explain the meaning of "fewer imports here and more imports there" as it relates to the balance of payments.

Domestic companies can sell more of their products with less imports.

Explain why international trade is important in today's economy.

International trade is important because it allows countries to expand their markets and access goods and services that otherwise may not have been available domestically.

Explain how comparative advantage helps nations acquire goods, services, and the resources they otherwise lack.

It helps because even when one country enjoys an absolute advantage in the production of all goods, trade between it and another country is still beneficial. Also because each country has a comparative advantage in a product the other country wants, trade will be beneficial to both.

Which opinion do you believe is correct? Explain your reasoning.

It's hard to say because the numbers seem to add up but Scott and Ratner made a good point on whether this time it will be different.

What are the factors involved in determining exchange rates?

Level of income, use of foreign currency, speculation, investment from abroad, relative inflation rates, relative interest rates, domestic demands for imports and Foreign demand for a country's exports. Demand for a country's exports = demand for a country's currency.

What is the relationship between foreign trade and the international value of the dollar?

The relationship between the value of the dollar and international trade is complex. Economists describe it as endogenous because the value of the dollar and trade are often jointly determined by factors such as the supply and demand for goods and services as well as the supply and demand for international investment.

Describe two attempts to facilitate the growth of international trade.

The two attempts were The World Trade Organization and NAFTA are the growth of international trade.

Describe the different types of tariffs.

There are two kinds of tariffs: protective tariff and revenue tariff. Protective tariffs are tariffs that are high enough to protect less-efficient domestic industries. Revenue tariff is a tariff that is high enough to generate revenue for the government without actually prohibiting imports.

Why do Scott and Ratner believe DR-CAFTA will not benefit either the United States or Central America?

They believe it will not benefit either because no protection was contained in NAFTA to maintain labor and environmental standards which made it hard on the workers leading to them to question what would make it any different this time.

Explain how tariffs and quotas protect American jobs.

They lead to higher prices of goods and fewer choices or quantity of imported goods for the consumer because of higher prices, consumers ultimately can buy fewer goods and services.

Why is censorship a form of trade barrier?

Trade barriers are government-induced restrictions on international trade. Censorship are a form of trade barrier because the government has the ability to restrict any content they don't like, which may impact the citizens by not allowing them to expand their views.

How does Yang hope to stay ahead of the competition?

Yang planned on staying ahead by tapping into the audience user groups to find out what they need.

Use the information from Figure 16.4 on page 457 to compare the price of a pair of S100 tennis shoes in the United States with the same brand sold (a) in South Korea at 11,000 W (won) and (b) in France for 1006 (euros).

a) Those $100 tennis shoes would cost a fortune to afford in South Korea. b) The shoes would cost about the same amount as it does in the United States.