Chapter 32: Q. cFCT (page 721)
Why do you think that heightened risk about gains or losses from market transactions is less likely than increased uncertainty to induce people to stop trading in the affected market?
A financial instrument trade or a futures and options activity is refereed to someone as an exchange process.
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Consider the data in Table 32-1. Would U.S. residents gain from the trade of U.S. tablets for Indian apps if the rate of exchange of tablet devices for digital apps happened to be 3 tablets per app?
Refer to your answers to Problem when answering the following questions.
a. Which one of the following rates of exchange of modems for flash memory drives will be acceptable to both nations: (i) modems for flesh drive; (ii) modem for flash drive; or (iii) flash drive for modems? Explain.
b. Suppose that each nation decides to use all available resources to produce only the good for which it has a comparative advantage and to engage in trade at the single feasible rate of exchange you identified in part (a). Prior to specialization and trade, residents of South Shore chose to produce and consume modems per hour and flash drives per hour, and residents of East Isle chose to produce and consume modems per hour and flash drives per hour. Now, residents of South Shore agree to export to Fast Isle the same quantity of South Shore's specialty good that Fast Isle residents were consuming prior to engaging in international trade. How many units of East Isle's specialty good does South Shore import from East Isle?
c. What is South Shore's hourly consumption of modems and flash drives after the nation specializes and trades with East Isle? What is East Isles hourly consumption of modems and flash drives after the nation specializes and trades with South Shore?
d. What consumption gains from trade are experienced by South Shore and East Isle?
Based on your answer to Problem 32-16, what are the total tariff revenues of the U.S. government? What percentage do U.S. consumers ultimately pay because of a higher price generated by the tariff?
Some critics of the North American Free Irade Agreement (NAFTA) suggest that firms outside NAFTA nations sometimes shift unassembled inputs to Mexico, assemble the inputs into final goods there, and then export the final product to the United States in order to take advantage of Mexican trade preferences. What term describes what these critics are claiming is occurring with regard to U.S.-Mexican trade as a result of NAFTA? Explain your reasoning.
What other elements besides soil, climate, and water conditions do you suppose influence whether a region or nation develops a comparative advantage in an agricultural product? (Hint: What other factors of production are involved in producing agricultural goods?)
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