Macroeconomics Chapter 5
According to Schumer and Roberts' article, "Second Thoughts on Free Trade," the three major developments in the modern world economy are:
(1) capital and technology flow far more freely around the world, (2)workers in the developing world, particularly in India and China, are becoming more educated, and (3)modern communications make it feasible for large work forces to be located and effectively managed anywhere.
The opportunity cost of 1 pounds of corn for the Mexican worker is:
(1/2) of a gun.
The opportunity cost of 1 pound of corn for the U.S. worker is:
(1/4) of a gun.
The opportunity cost of 1 gun for the Mexican worker is:
2 pounds of corn.
The opportunity cost of 1 gun for the U.S. worker is
4 pounds of corn.
Assume that the world price of a 50" TV is lower than the U.S. price. When the U.S. opens its TV market to imports, Consumer surplus in the U.S. would be $0.
Consumer surplus in the U.S. would increase.
Suppose the production of one ton of corn in the U.S. needs $10 worth of labor, and $20 worth of capital. The production of one ton of corn in Mexico needs $50 worth of labor and $5 worth of capital. We can conclude that:
Corn production is capital intensive in the U.S.
Who has a comparative advantage in the production of gun?
The Mexican worker
Assume that an U.S. worker can produce either 20 pounds of corn/hour, or 5 guns/hour; and a Mexican worker can produce 8 pounds of corn/hour, or 4 guns/hour. Who has absolute advantage in the production of corn? Note: Please use the above data to answers question 6-13 below.
The U.S. worker
Who has absolute advantage in the production of guns?
The U.S. worker.
Who has a comparative advantage in the production of corn?
U.S. worker
If you are willing and able to buy a 50" TV for $200, but such TVs sell for $500,
You would not buy the TV, and your consumer surplus is $0.
Generally, when the world price of a product is lower than the U.S. price, allowing the import of this product into the U.S. market would:
benefit consumers and hurt producers.
Tariff, a tax on imported goods and services, tends to
hurt consumers and benefit producers.
If the U.S. is in autarky (isolation, no trade), the U.S. consumption is:
is limited by its production.
According to the textbook, when the U.S. trades with Mexico (See Fig. 5.3), the U.S. consumption with trade:
is more than its production. The U.S. is better off because of trade. Its consumption level after trade is outside of its production possibilities frontier.
According to Schumer and Roberts' article, the comparative advantage principle of free trade:
might not be applicable to the modern economy.
According to Douglas A. Irwin's article, "Outsourcing is Good for America":
outsourcing benefits both U.S.' consumers and exporters.
According to the above comparative cost data, the U.S. should:
specialize more in corn production, export corn, import guns
If the U.S. has comparative advantage in corn over Mexico, then:
the U.S. opportunity cost of one ton of corn is less than the Mexican opportunity cost.
If a seller was willing and able to sell a 50" TV for $100, but actually sold it for $500,
the seller's producer surplus is $400, the difference between what the seller was willing to pay and the price he actually sold for.
According to Hechscher-Ohlin model, the country that has an abundance of labor will have comparative advantage in goods:
whose production is labor intensive.
If you were willing and able to buy a 50" TV for $800, but you paid only $500 for the TV at the store,
your consumer surplus is $300.
