introduction macroeconomics ch 7
a) _____ are goods and services produced domestically but sold to other countries. b) _____ are goods and services bought domestically but produced in other countries. c) _____ are taxes imposed by a government on imports of a good into a country.
a) exports b) imports c) tariffs
The World Trade Organization (WTO)
a) is an international organization that oversees international trade agreements b) generally aids in negotiating trade agreements that include not only goods but also services and intellectual property c) replaced the General Agreement on Tariffs and Trade (GATT) in January 1995
among the main sources of comparative advantage are the following
climate and natural resources, relative abundance of labor and capital, technology, external economies
dumping
is selling a product for a price below its cost of production
comparative advantage
may change as time passes and circumstances change
we do not see complete specialization in the real world because
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ
who is harmed when individual nations move from autarky to free trade?
the owners of the firms that went out of business
the primary difference between a quota and a voluntary export restraint (VER) is that
the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations
some politicians argue that eliminating US tariffs and quotas would help the US economy only if other countries eliminated their tariffs and quotas in exchange
this statement is false; the US economy would gain from the elimination of tariffs and quotas even if other countries do not reduce their tariffs and quotas
suppose the United States and Japan produce only cell phones and digital music players, like Apple's iPod. Assume that each country uses only labor to produce each good, and that Japanese and U.S. cell phones and digital music players are exactly the same. TABLE Output per Hour of Work Cell Phones Japan: 12 US: 2 Digital Music Players Japan: 6 US: 4 determine the missing opportunity costs in the table below and fill in the missing values. (enter your responses rounded to one decimal place) TABLE Opportunity Costs Cell Phones Japan: 0.5 US: _____ Digital Music Players Japan: _____ US: 0.5 from the tables above it is clear that _____ has an absolute advantage in the production of both goods and that _____ has a comparative advantage in cell phones, while _____ has a comparative advantage in digital music players.
ANSWERS TABLE Opportunity Cost US cell phone: 2.0 Japan digital music players: 2.0 ANSWERS FILL-IN-THE-BLANK Japan, Japan, the US
why do some people oppose the World Trade Organization (WTO)?
all of the above a) some opponents desire to erect trade barriers to protect domestic firms from foreign competition b) some critics of the WTO support globalization in principle but believe that the WTO favors the interests of the high-income countries at the expense of the low-income countries c) some opponents are specifically against the globalization process that began in the 1980s and became widespread in the 1990s
comparative advantage
is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors
one effect of tariffs and quotas
is to cost jobs outside the industries immediately affected
the US is _____ in the world international trade remains _____ to the US than it is to most other countries
one of the largest exporters, less important
protectionism is the use of trade barriers to shield domestic firms from foreign competition protectionism is usually justified on the basis of several arguments which include
saving jobs, protecting infant industries, and protecting national security
the diagram shows the actual statistics for the U.S. sugar market in 2018, reflecting a quota of 6.4 billion pounds placed on U.S. imports (complete the table illustrating the welfare effects of this quota) loss of consumer surplus = gain by US sugar producers + gain to foreign sugar producers + deadweight loss
ANSWER FORMULA A + B + C + D = A + B + C + D loss of consumer surplus (A+B+C+D) = gain by US sugar producers (A) + gain to foreign sugar producers (B) + deadweight loss (C+D)
_____ is a situation in which a country does not trade with other countries. the _____ is the ratio at which a country can trade its exports for imports from other countries by trading, countries are able to consume more than they could without trade. This outcome is possible because
Autarky, terms of trade all of the above a) inefficiencies in resource allocation are reduced b) shifting production to the more efficient country—the one with the comparative advantage—increases total production c) world production of both goods increases after trade
in addition to tariffs and quotas, governments sometimes erect other barriers to trade. for example, all governments require that imports meet certain health and safety requirements. many governments also restrict imports of certain products on national security grounds explain whether you agree or disagree with the following statement: sometimes, however, governments use these requirements to shield domestic firms from foreign competition
yes, sometimes governments impose stricter health and safety requirements on imported goods than on goods produced by domestic firms
As illustrated in the diagram, when a nation moves from autarky to free trade, economic surplus increases by the areas represented by
c and d
the diagram on the right represents a tariff imposed on an individual market. The total deadweight loss (loss in economic surplus) from this tariff is illustrated by areas
c and d