chapter 19 macroeconomics
Suppose the domestic price no international trade price of wheat is $3.50 a bushel in the United States while the world price is $4.00 a bushel. Assuming no transportation cost, the United States will
Export wheat
The accompanying tables give production possibilities data for gamma and sigma. All data are in tons. On the basis of this information,
Gamma should export tea to Sigma and Sigma should export pots to Gamma.
The law of increasing opportunity cost
May limit the extent to which a nation specializes in producing a particular product
Referred to the graphs. Terryville has a comparative advantage in producing.
Product A
In the accompanying diagrams, solid lines are production, possibilities, curves, and the dash lines are trading possibilities curves. The data suggests that.
West Lothian should specialize in, and export, beer
The production possibilities curve suggest that
West Mudville should specialize in, and export, baseball bats
A high tariff on imported good X might reduce domestic employment in industry. Y, if
X is an input used domestically in producing Y.
The fact that international specialization and trade based on comparative advantage, can increase world output, is demonstrated by the reality that
a nation's trading possibilities line lies to the right of its production possibilities line.
Differences in production efficiencies among nations in producing a particular good result from
all of these
Countries engaged in international trade, specialize in production based on
comparative advantage
Studies show that
costs of trade barriers exceed their benefits, creating an efficiency loss for society
Other things, equal, economist would prefer
free trade to tariffs and tariffs to import quotas.
A protective tariff will
increase the price and sales of domestic producers
Answer the question using the accompanying cost ratios for two products, fish, F, and chicken, C, in countries singsong and harmony. Assume that production occurs under conditions of constant cost, and that these are the only two nations in the world. Singsong: 1F = 2C Harmony: 1F = 4C In singsong the domestic real cost of each chicken
is 1/2 fish
In the theory of a comparative advantage, a good should be produced in that nation, where:
its cost is least in terms of alternative goods that might otherwise be produced.
The primary gain from international trade is
more goods than would be attainable through domestic production alone.
If country A can produce both goods X and Y, more efficiently, that is, with smaller absolute amounts of resources, than can country B,
mutually advantageous specialization and trade between A and B may still be possible.
In the real world, specialization is rarely complete, because
nations normally experience increasing opportunity costs in producing more of the product in which they are specializing.
Refer to the diagram, which shows the domestic demand and supply curves for a specific standardized product in a particular nation. If the world price for this product is $1.60, this nation will experience a domestic.
surplus of 160 units, which it will export.
Refer to the diagram, where SD and D D, are the domestic supply and demand for a product and PC is the world price of that product. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers, respectively, would be.
v and vz
A major difficulty with the argument that trade barriers are necessary because foreign workers are paid low wages is that
wage rates and labor productivity are directly related
