Chapter 20: Q9. (page 431)
True or False. If a country is open to international trade, the domestic price of a product can differ from the international price of that product.
The given statement is false.
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Identify and state the significance of each of the following trade-related entities: (a) the WTO; (b) the EU; (c) the Euro Zone; and (d) NAFTA.
The following hypothetical production possibilities tables are for China and the United States. Assume that before specialization and trade the optimal product mix for China is alternative B and for the United States is alternative U.
China Production Alternatives | ||||||
Product | A | B | C | D | E | F |
Apparel (in thousands) | 30 | 24 | 18 | 12 | 6 | 0 |
Chemicals (in tons) | 0 | 6 | 12 | 18 | 24 | 30 |
U.S. Production Alternatives | ||||||
Product | R | S | T | U | V | W |
Apparel (in thousands) | 10 | 8 | 6 | 4 | 2 | 0 |
Chemicals (in tons) | 0 | 4 | 8 | 12 | 16 | 20 |
Are comparative-cost conditions such that the two areas should specialize? If so, what product should each produce?
What is the total gain in apparel and chemical output that would result from such specialization?
What are the limits of the terms of trade? Suppose that the actual terms of trade are 1 unit of apparel for 1½ units of chemicals and that 4 units of apparel are exchanged for 6 units of chemicals. What are the gains from specialization and trade for each nation?
How might protective tariffs reduce both the imports and the exports of the nation that levies tariffs? How might import competition lead to quality improvements and cost reductions by U.S. firms?
In 2018, manufacturing workers in the United States earned average compensation of \(21.86 per hour. That same year, manufacturing workers in Mexico earned average compensation of \)3.20 per hour. How can U.S. manufacturers possibly compete? Why isn’t all manufacturing done in Mexico and other low-wage countries?
Why is a quota more detrimental to an economy than a tariff that results in the same level of imports as the quota? What is the net outcome of either tariffs or quota for the world economy?
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