Chapter 21: Q.15 (page 522)
What is the difference between a free trade association, a common market, and an economic union?
The economic union is the same as common markets expect monetary & fiscal policy & in free trade, association countries can have their trade policy outside the association.
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The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in Table 21.6 and Table 21.7.
a. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?
b. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?
c. Sketch two supply and demand diagrams, one for each country, in the situation before trade.
d. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.
e. If the Land of Submarines imposes an antidumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.
f. Does your general answer change if the Land of Submarines imposes an import quota of 70?
What are the gains from competition?
Why do you think that the GATT rounds and,
more recently, WTO negotiations have become longer and more difficult to resolve?
How is international trade, taken as a whole, likely
to affect the average level of wages?
What are some ways that governments can help people who lose from trade?
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