Governments, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade When governments set a limit on the quantity of imports, this is known as OA an export subsidy OB. dumping O.C. a quota

Governments, for many reasons, often intervene in international markets, offsetting some of the efficiencies that may be realized with specialization based on comparative advantage and trade When governments set a limit on the quantity of imports, this is known as OA an export subsidy OB. dumping O.C. a quota

Microeconomics: Principles & Policy

14th Edition

ISBN:9781337794992

Author:William J. Baumol, Alan S. Blinder, John L. Solow

Publisher:William J. Baumol, Alan S. Blinder, John L. Solow

Chapter21: International Trade And Comparative Advantage

Section: Chapter Questions

Problem 6DQ

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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: QsT=-5+14P QsJ=-10+14P QdT=60-P QdJ=80-P P is the price measured in a common currency used in both countries, such as the Thai Baht. Compute the equilibrium price (P) and quantities in each country without trade. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and Imports cameras and in what quantities?
How would direct subsidies to key industries be preferable to tariffs or quotas?
Are the gains from international trade more likely to be relatively more important to large or small countries?
Trade has income distribution effects. For example, suppose that because of a government-negotiated reduction in trade barriers, trade between Germany and the Czech Republic increases. Germany sells house paint to the Czech Republic. The Czech Republic sells alarm clocks to Germany. Would you expect this pattern of trade to increase or decrease jobs and wages in the paint industry in Germany? The alarm clock industry in Germany? The paint industry in Czech Republic? The alarm clock industry in Czech Republic? What has to happen for there to be no increase in total unemployment in both countries?
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 34.6 and Table 34.7. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell? What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell? Sketch two supply and demand diagrams, one for each country, in the situation before trade. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade. If the Land of Submarines imposes an anti- dumping import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country. Does your general answer change if the Land of Submarines imposes an import quota of 70?
Show graphically that for any tariff, there is an equivalent quota that would give the same result. What would be the difference, then, between the two types of trade barriers? Hint: It is not something you can see from the graph.
Suppose that Congress imposes a tariff on importedautomobiles to protect the U.S. auto industry fromforeign competition. Assuming that the United Statesis a price taker in the world auto market, show thefollowing on a diagram: the change in the quantityof imports, the loss to U.S. consumers, the gainto U.S. manufacturers, government revenue, andthe deadweight loss associated with the tariff. Theloss to consumers can be decomposed into threepieces: a gain to domestic producers, revenue forthe government, and a deadweight loss. Use yourdiagram to identify these three pieces.
Consider the arguments for restricting trade.a. Imagine that you are a lobbyist for timber, anestablished industry suffering from low-pricedforeign competition, and you are trying to getCongress to pass trade restrictions. Which twoor three of the five arguments discussed in thechapter do you think would be most persuasiveto the average member of Congress? Explain yourreasoning.b. Now assume you are an astute student ofeconomics (not a hard assumption, we hope).Although all the arguments for restricting tradehave their shortcomings, name the two or threearguments that seem to make the most economicsense to you. For each, describe the economicrationale for and against these arguments for traderestrictions.
The two main reasons why international trade is restricted are that tariffs O A. save jobs and allow domestic producers to compete with foreign firms that use cheap labor penalize lax environmental standards and protect defense industries O B. O C. create tariff revenue and rent seeking is popular O D. protect infant industries from competition and protect national security The countries that benefit most from tariff revenue are O A. countries involved in trade organizations but are separated by large distances OB. developed countries OC. developing countries O D. countries involved in trade agreements such as NAFTA and the European Union The United States still implements some trade restrictions because the people who would lose from free trade would lose big and the people who gain, would gain a small amount. O A. True O B. False