Chapter 20: Q. 34 (page 490)
If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade barriers, and not bother with international trade negotiations?
Nations do not eliminate their trade barriers because trade agreements force the country to follow certain rules of trade.
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Assume two countries, Thailand (T) and Japan (J),
have one good: cameras. The demand (d) and supply (s) for cameras in Thailand and Japan is described by the following functions: QdT
= 60 – P
QsT = –5 + 14 P
QdJ = 80 – P
QsJ = –10 + 12P
P is the price measured in a common currency used in both countries, such as the Thai Baht.
a. Compute the equilibrium price (P) and quantities
(Q) in each country without trade.
b. Now assume that free trade occurs. The free-
trade price goes to 56.36 Baht. Who exports and
imports cameras and in what quantities?
From the Work It Out "Effects of Trade Barriers," you can see that a tariff raises the price of imports. What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically?
Explain how trade barriers raise wages in protected industries by reducing average wages economy-wide.
An economic union requires giving up some political autonomy to succeed. What are some examples of political power, countries must give up to be members
of an economic union?
In principle, the benefits of international trade to a country exceed the costs, no matter whether the country is importing or exporting. In practice, it is not always possible to compensate the losers in a country, for example, workers who lose their jobs due to foreign imports. In your opinion, does that mean that trade should be inhibited to prevent losses?
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