International Econ Test 1 Ch 1-4, 9 (UAB Econ 420)
The GATT was
an international treaty governing trade.
For trade to take place, a country must face a world relative price that is
different from the relative price that would prevail in the absence of trade.
Within each country that opens itself to international trade,
some factor owners gain, but other factor owners lose.
Over the past forty years the composition of developing-country exports has
undergone a dramatic shift from primary products to manufactures.
In claiming that "size matters," the gravity model asserts that there is a strong empirical relationship between the size of a country's economy and the
volume of its imports and exports.
In each sector of a specific factors economy, profit-maximizing employers will demand labor up to the point where
the marginal product of labor times the price of the product equals the wage rate.
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.
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.
What is the definition of a "small" country?
A country that cannot affect its terms-of-trade.
How is an export subsidy by a large country different from an import quota by a large country?
An export subsidy worsens terms of trade while an import quota improves them
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.
Canada is close to a major economy... Transportation costs for imports and exports are higher in Australia because the distance goods must travel.
An import tariff imposed by a large country affects income distribution in the following way:
Consumers lose in the importing country and gain in the exporting country, while producers gain in the importing country and lose in the exporting country.
The sources of modern trade are largely rooted in
Country differences in human and human-created resources
The quantity of direct foreign investment by the United States into Mexico has increased dramatically during the last decade. How would you expect this increased quantity of direct foreign investment to affect migration flows from Mexico to the United States, all else being equal?
Direct foreign investment has increased the amount of capital per worker in Mexico. This will increase the marginal product of labor and increase the real wage, which should slow the flow of labor from Mexico.
Since World War II (the early 1950s), the proportion of most countries' production being used in some other country
Increased
Which of the following is NOT true about the VER?
It benefits the exporting country as a whole.
Which of the following is NOT true about the export supply curve?
It is steeper than the domestic supply curve in the exporting country.
Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis. When the price of cloth increases by 2% and the price of food does not change,
Labor shifts from food sector to cloth sector
The international debt crisis of early 1982 was precipitated when _____ could not pay its international debts.
Mexico
Over the last few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian tradelong dashthat is, trade among East Asian nationslong dashhas grown as a share of world trade. More than that, 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.
What would be the effective rate of protection on bicycles in China if China places a 50 percent tariff on bicycles, which have a world price of $190, and no tariff on bike components, which together have a world price of $110?
The effective rate of protection (ERP) is 118.75 percent.
What does the term "import demand" describe?
The excess of domestic demand over domestic supply.
Although trade creates gains for some and losses for others, economists do not, generally, stress the income redistribution effects of international trade. Which of the following is NOT a reason why economists tend to de-emphasize the impact of international trade on the distribution of income?
Those that lose from trade tend to be marginally impacted by trade, poorly organized, and largely devoid of political influence.
Which of the following is not a misconception about comparative advantage and the nature of the gains from free trade?
Trade based upon comparative advantage can be mutually beneficial.
Assume the U.S. currently grows 2.0 million tons of fresh winter fruit and that the resources absorbed in the production of this fruit could have produced 200 comma 000 laptop computers. Therefore, the opportunity cost of those 2.0 million tons of fruit is 200,000 computers. (Enter your response as an integer.) Suppose that South America could have instead produced those 2.0 million tons of fruit at an opportunity cost of 150,000 laptops. Because of the difference in opportunity costs between the two regions, it can be shown that trade gives the possibility of
a mutually beneficial rearrangement of world production.
The relative demand for labor function is shaped as
a step function.
Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren't tradable. So which matters for Chinese wageslong dashmanufacturing or service productivity?
both sectors matter because Chinese wages are a function of productivity and prices in all sectors.
A century ago each country's exports were shaped largely by
climate and natural resources.
The fundamental reason why trade potentially benefits a country is that it
expands the economy's choices.
Cost-benefit analysis of international trade
focuses attention on conflicts of interest within countries
Cost-benefit analysis of international trade
focuses attention on conflicts of interest within countries.
An import quota
generates rents that might go to foreigners.
The coordination of international macroeconomic policies among sovereign nations
has only recently been advocated by economists.
International capital markets
have grown significantly since the 1960s, link the capital markets of individual countries.
Movement of labor from a Foreign country to the domestic (Home) economy
increases the marginal product of labor in Foreign.
Transactions that involve the physical movement of goods or a tangible commitment of resources are the domain of
international trade analysis.
The degree of specialization predicted by the basic Ricardian model
is much more extreme than is observed in the real world.
An important insight of international trade theory is that when countries exchange goods and services one with the other, it
is usually beneficial to both countries.
A country has a comparative advantage in producing a good if
its opportunity cost of producing that good is lower than elsewhere
A country has a comparative advantage in producing a good if
its opportunity cost of producing that good is lower than elsewhere.
The claim that trade exploits a country and makes it worse off if its workers receive much lower wages than workers in other countries is shown by the Ricardian model to
miss the point because it fails to consider the alternative, which would be even lower wages.
In the real world, the dividing line between trade and monetary issues is
neither simple nor clear-cut.
In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and Louisiana, 1986 was a year of economic decline. Why? In Texas and Louisiana, 1986 was a year of economic decline because in these two states,
oil production was reduced.
Since the end of World War II, the view within the advanced democracies concerning the amount of trade has
recently been questioned by a largely political movement composed of traditional protectionists and new ideologies.
In the multi-good, single-factor Ricardian model the equilibrium relative wage of Home's workers is determined by the
relative demand and relative supply of labor.
When an economy is open to trade, the relative price of a good is determined by the
relative supply and demand for the world.
Assume a specific factors economy produces two goods, cloth and food, and that when representing this economy graphically, cloth is on the x-axis and food is on the y-axis.
the budget constraint is tangent to the production possibility frontier at the chosen production point.
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.
Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis. When the price of cloth increases by 1% and the price of food does not change,
the output of cloth rises
Assume a specific factors economy produces two goods, cloth and food, and that when representing the output of this economy graphically, cloth is on the x-axis and food is on the y-axis. When the price of cloth increases by 5% and the price of food does not change,
the output of the cloth rises
If there are large disparities in wage levels between countries, then
trade is likely to be harmful to neither country.
The nature of political battles over trade in the modern era
typically centers on issues involving the trade-induced devaluation of labor skills.
