MICROECONOMICS(LL)COMPANION
21st Edition
ISBN: 9781260713541
Author: McConnell
Publisher: MCG
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Chapter 26, Problem 8RQ
To determine
The benefits of an international trade.
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Check out a sample textbook solutionStudents have asked these similar questions
Which of the following statements about foreign trade is
correct? Choose an answer:
O 1. A good is imported if the world market price for this good is higher than the domestic
opportunity costs of producing this good.
O 2. A good is exported if the world market price for this good is lower than the domestic
opportunity costs of producing this good.
3. The levying of a domestic duty rate on an imported good increases the
producer surplus and reduces the domestic consumer surplus.
O 4. If a country has an absolute advantage in one good, it also has a comparative advantage
in that good.
O 5. A particularly productive country can have a comparative advantage in all goods.
3. 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. LO20.2
a. Are comparative-cost conditions such
that
the
two
countries
should
specialize? If so, what product should
each produce?
b. What is the total gain in apparel and
chemical output that would result
from such specialization?
c. What are the limits of the terms of
trade? Suppose that the actual terms
of trade are 1 unit of apparel for 1 unit
of chemicals and 4 units of apparel for
6 units of chemicals. What are the
gains from specialization and trade for
each nation?
China Production Possibilities
Product
A
D
F
Apparel (in thousands)
30
24
18
12
Chemicals (in tons)
12
18
24
30
U.S. Production Possibilities
Product
R
T.
V
Apparel (in thousands)
hemicals (in tons)
10
8.
4
4
8.
12
16
20
p. 579
Suppose that two countries can produce wheat or cotton. If country A produces only wheat it can produce 38 units of wheat, and if it only produces cotton
it can produce 45 units of cotton. If country B produces only wheat it can produce 27 units of wheat, and if it only produces cotton it can produce 35 units
of cotton. Given the production possibilities frontiers above which of the following would be feasible terms of trade between country A and country B?
O a. One unit of cotton for 0.92 units of wheat.
O b. One unit of cotton for 0.72 units of wheat.
O c. One unit of wheat for 1.08 units of cotton.
O d. One unit of wheat for 1.35 units of cotton.
O e. None of the other answers are feasible terms of trade.
Chapter 26 Solutions
MICROECONOMICS(LL)COMPANION
Ch. 26.2 - Prob. 1QQCh. 26.2 - Prob. 2QQCh. 26.2 - Prob. 3QQCh. 26.2 - Prob. 4QQCh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQ
Ch. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Prob. 10DQCh. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 14DQCh. 26 - Prob. 1RQCh. 26 - Prob. 2RQCh. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - Prob. 7RQCh. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - Prob. 11RQCh. 26 - Prob. 12RQCh. 26 - Prob. 13RQCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Prob. 3PCh. 26 - Prob. 4P
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- 5. Free-trade benefits In addition to the positive welfare effects that free trade has on an economy, there are a variety of other benefits of international trade. Consider the following scenario: Because of international trade, poorer countries are able to learn about technological advances made by other countries rather than investing scarce resources in developing advanced technology themselves. The previous scenario represents which of the following benefits of free trade? O Increased variety of goods O Increased competition O Lower costs through economies-of scale O An enhanced flow of ideasarrow_forwardA= C+1 45 Y. Yo Y1 Which one of the following statements is false? Y1 represents the equilibrium level of income. The curve labelled A = C +1 shows the total of consumption and investment spending. The curve labelled C shows the total of autonomous and induced consumption spending. The point labelled D shows where savings equal investment. A. C. 2. In macroeconomic theory, total or aggregate spending is denoted by A and total or aggregate production of income by Y. Which one of the following statements is incorrect? When A is greater than Y, there is disequilibrium and Y will tend to increase. When A is equal to Y, there is equilibrium and Y will remain unchanged. When A is less than Y, there is disequilibrium and Y will decrease. When A is greater than Y, there is disequilibrum and A will decrease A. 10arrow_forwardAssume the following information shows the output of 2 goods in 2 countries before specialization. [Also assume that the same amount of resources are used by both countries and are equally divided between their two industries, 1 and 3.] Automobiles Computers U.S. 20 15 Germany 15 5 Which country has the absolute advantage in automobile production? Why? In Germany, the opportunity cost of producing 1 automobile is the loss of _________. Which country has the comparative advantage in automobile production? Why? If both countries produce according to the respective comparative advantages, what goods will the U.S. and Germany end up producing after specialization? Gains from Trade: How many more units of total output (automobiles + computers) will be produced after specialization? Terms of Trade: If the U.S. and Germany trade with each other, and the U.S. sends Germany 10 computers, at least how many autos will the U.S. expect in return? Be specific. Draw the PPF for…arrow_forward
- Price (dollars per shirt) 44 40 36 32 28 24 20 16 12 O 8 O 32 million The figure shows the market for shirts in the United States, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. The United States imposes a tariff on imported shirts, $4 per shirt. 24 million S In the figure above, with the tariff the United States imports 8 million D O 16 million 16 24 32 40 48 56 64 Quantity (millions of shirts per year) million shirts per year.arrow_forwardA small country is facing the following domestic supply curve of a product: S = 200 + 20P, as well as the following domestic demand curve of a product: D = 400 - 20P. It can import it at a world price of 10 per unit. In addition, each unit of production yields a marginal social benefit of 10. The effect on welfare of an import tariff of 6 per unit is $. O -420 O 500 O -480 O 420 O 320 -500 O :180 O -320 480 O 180arrow_forwardSuppose Big Country can produce 80 units of X by using all its resources to produce X or 60 units of Y by devoting all its resources to Y. Comparable figures for Small Nation are 60 units of X and 60 units of Y. Assuming constant costs, in which product should each nation specialize? Explain why. What are the limits of the terms of trade between these two countries? How would rising costs (rather than constant costs) affect the extent of specialization and trade between these two countries?arrow_forward
- Governments sometimes erect barriers to trade other than tariffs and quotas. Which of the following is not an example of this type of trade barrier? O a requirement that imports meet health and safety requirements restrictions on imports for national security reasons 4 O a requirement that the employees of domestic firms that engage in foreign trade pay income taxes O a requirement that the U.S. government buy military uniforms only from US, manufacturersarrow_forwardQUESTION 22 P COUNTRY 1 25 20 15 10 5 d1 Q 0 0 3 6 9 1215182124 s1 IP INTERNATIONAL MARKET 25 20- 15 10- LO P 5 S2 P 0 0 3 6 9 1215182124Q 25 20- S1 15 IP 10 D2 5 D1 0 COUNTRY 2 ⠀⠀ 22. What is the net welfare gain from trade to the economy of country 1? (hint: the formula for calculating the area of a triangle is 1/2 times the base times the height) a) 3 b) 6 c) 9 d) 13.5 e) 18 s2 IP d2 0 3 6 9 1215182124Qarrow_forward25 20 15 10 LO 5 P COUNTRY 1 s1 IP d1 EQ 0 0 3 6 9 1215182124 INTERNATIONAL MARKET P 25 20 15 10 5 0 0 3 6 9 12 15182124 Under open trade, who will gain and who will lose in country 2? O a) consumers gain and producers lose. b) producers gain and consumers lose. c) both producers and consumers lose. O d) the poor lose and the rich gain. S2 S1 IP D2 D1 Q P COUNTRY 2 25 20 15 10 5 d2 0 0 3 6 9 1215182124 Q s2 IParrow_forward
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