ECON EXAM 2- chapter 9

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

the gains of the domestic producers of the good exceed the losses of the domestic consumers of the good.

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

trade results in an increase in total surplus.

arguments against international trade

1. lost jobs (lost earnings, higher risk of: divorce, death, smoking, alcohol,) 2. national security 3. infant industry 4. unfair competition 5. bargaining chip

assumptions about world price

1. small open economy 2. no influence on world 3. take world price as given

arguments for international trade

1. welfare increase 2. increase variety of goods/services 3. economics of scale increase (increase in Q, decrease in average costs) 4. competition increase 5. enhanced flow of ideas

exports

= difference between the domestic quantity supplied ad the domestic quantity demanded at the world price

imports

= the difference between the domestic quantity demanded and the domestic quantity supplied at the world price

international trade in importing country

>domestic price falls to equal world price -buyers better off (consumer surplus rises) -sellers worse off (producer surplus falls) -total surplus rise by amout equal to imports >consumer surplus gains larger the produce surplus loss

international trade in exporting coutnry

>domestic price rises to equal the world price -sellers better off (producer surplus rises) -buyers are worse off (consumers surplus falls) -total surplus rises by an amount equal to exports >producer surplus gain larger then consumer surplus loss

When a nation first begins to trade with other countries and the nation becomes an exporter of soybeans

All of the above are correct.

Suppose a certain country imposes a tariff on a good. Which of the following results of the tariff is possible?

Consumer surplus decreases by $200; producer surplus increases by $100; and government revenue from the tariff amounts to $50.

When a country allows trade and becomes an exporter of a good, which of the following is not a consequence?

The losses of domestic consumers of the good exceed the gains of domestic producers of the good.

Chile is an importer of computer chips, taking the world price of $12 per chip as given. Suppose Chile imposes a $7 tariff on chips. Which of the following outcomes is possible?

The price of chips in Chile increases to $19; the quantity of Chilean-produced chips increases; and the quantity of chips imported by Chile decreases.

Suppose a country begins to allow international trade in steel. Which of the following outcomes will be observed regardless of whether the country finds itself importing steel or exporting steel?

The sum of consumer surplus and producer surplus for domestic traders of steel increases.

tariff

a tax on goods produced abroad by other countries and sold domestically

What is the fundamental basis for trade among nations?

comparative advantage

dead weight loss of the tariff

fall in total surplus from a tariff

The United States has imposed taxes on some imported goods that have been sold here by foreign countries at below their cost of production. These taxes

harm the United States as a whole, because they reduce consumer surplus by an amount that exceeds the gain in producer surplus and government revenue.

The nation of Falconia forbids international trade. In Falconia, you can obtain a computer by trading 3 bicycles. In other countries, you can obtain a computer by trading 5 bicycles. These facts indicate that

if Falconia were to allow trade, it would export computers.

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an

importer of fish and the price of fish in Germany will be $6.00.

Assume, for Singapore, that the domestic price of soybeans without international trade is higher than the world price of soybeans. This suggests that, in the production of soybeans

other countries have a comparative advantage over Singapore and Singapore will import soybeans.

world price

price of a good tat prevails in the world market for that good -if world price of good is higher than domestic price then country will export goods -if world price of a good is lower than domestic price then country will import

world price

price of a good/service found in world market (WP) -can consume more than produce -trade form of technology trade can be beneficial world price compared to domestic price-tells or not if you have comparative advantage

When a country that imported a particular good abandons a free-trade policy and adopts a no-trade policy,

producer surplus increases and total surplus decreases in the market for that good.

tarrif effects

tariff reduces the quantity of imports ad moves the domestic market closer to its equilibrium (equilibrium without trade) total surplus falls by an amount equal to the dead weight loss from the tariff

Suppose Guatemala has an absolute advantage over other countries in producing sugar, but other countries have a comparative advantage over Guatemala in producing sugar. If trade in sugar is allowed, Guatemala

will import sugar