The US Economy
How is the U.S. economy affected by international trade?
U.S. consumers buy
increasing
quantities of goods and services produced in other countries. At the same time, U.S. businesses sell
increasing
quantities of goods and services to consumers in other countries.
International trade has always played a role in the U.S. economy. Is this role increasing or decreasing (in terms of exports and imports)?
International trade is
C.
increasing because
shipping costs have decreased
Exports
are goods and services produced domestically but sold to other countries.
Imports
are goods and services bought domestically but produced in other countries.
Tariffs
are taxes imposed by a government on imports of a good into a country.
The United States is
one of the largest exporters
in the world. International trade remains
less important
to the United States than it is to most other countries.
Suppose
France
and
Spain
produce only cloth and wine. Assume that each country uses only labor to produce each good, and that the cloth and wine made in
France
and
Spain
are exactly alike. The table below shows how much each country can produce of each good with one hour of labor.
Output per Hour of Labor | |||
Cloth |
Wine | ||
FranceFrance |
18 |
16 | |
SpainSpain |
3 |
9 |
According to the table, the opportunity cost to
France
of producing one more unit of cloth is
.0.89
units of wine), and the opportunity cost to
Spain
of producing one more unit of cloth is
.3
units of wine.
Thus, we can conclude that
B.
France
has a comparative advantage in producing cloth and
Spain
has a comparative advantage in producing wine.
Suppose the United States and Japan produce only cell phones and digital music players, like Apple's iPod. Assume that each country uses only labor to produce eachgood, and that Japanese and U.S. cell phones and digital music players are exactly the same.
Output per Hour of Work
Cell Phones |
Digital Music Players | |
Japan |
1 |
2 |
United States |
6 |
3 |
Determine the missing opportunity costs in the table below and fill in the missing values. (Enter your responses rounded to one decimal place.)
Opportunity Costs
Cell Phones |
Digital Music Players | |
Japan |
2.0 |
0.5 |
United States |
.0.5 |
2.0 |
From the tables above it is clear that _____ has an absolute advantage in the production of both goods and that _____ has a comparative advantage in cell phones, while _____ has a comparative advantage in digital music players.
C.
the United States,the United States,Japan
Comparative advantage
C.
is the ability of an individual, a firm, or a country to produce a good or service at a lower opportunity cost than competitors.
Suppose the United States and
JapanJapan
produce only cell phones and digital music players. Assume that each country uses only labor to produce each good, and that the cell phones and digital music players made in the United States and
JapanJapan
are exactly alike. The table below shows how much each country can produce of each good with one hour of labor.
Output per Hour of Labor | ||||
Cell Phones |
Digital Music Players | |||
United States |
3 |
9 | ||
JapanJapan |
23 |
17 | ||
According to the table,
Japan
has an absolute advantage in producing cell phones, and
Japan
has an absolute advantage in producing digital music players.
At the same time,
Japan
has a comparative advantage in producing cell phones, and
the United States
has a comparative advantage in producing digital music players.
Assume the table below shows the quantities of wine and cheese that a worker can produce in an hour in France and Italy.
Wine (bottles) |
Cheese (ounces) | |
France |
4 |
11 |
Italy |
8 |
27 |
Italy
has an absolute advantage producing wine and
Italy
has an absolute advantage producing cheese.
France
has a comparative advantage producing wine and
Italy
has a comparative advantage producing cheese.
Assume the table below shows the quantities of computers and cell phones that a worker can produce in an hour in Japan and South Korea.
Computers |
Cell Phones | |
Japan |
6 |
28 |
South Korea |
2 |
11 |
The opportunity cost of producing a computer in Japan is
4.67
cell phones and the opportunity cost of producing a computer in South Korea is
.5.50
cell phones
Japan
has a comparative advantage producing computers and
South Korea
has a comparative advantage producing cell phones.
Comparative advantage
A.
may change as time passes and circumstances change.
Among the main sources of comparative advantage are the following:
B.
climate and natural resources, relative abundance of labor and capital, technology, external economies.
We do not see complete specialization in the real world because
B.
not all goods and services are traded internationally, production of most goods involves increasing opportunity costs, and tastes for products differ.
f both countries specialize completely by producing only that for which they have a comparative advantage and then trade
2,000
automobiles for
14,000
computers, what will each country's consumption of automobiles and computers be?
To answer this question, fill in the table below with the amounts of automobiles and computers the United States and Japan will consume with specialization and trade. (Enter your responses as whole numbers.)
Automobiles |
Computers | |
United States |
2,000. |
42,000 |
Japan |
6,000 |
14,000 |
If both countries specialize completely by producing only that for which they have a comparative advantage and then trade, what would be the terms of trade that would benefit both countries?
A.
Both countries would benefit from trade if
Philippines
were to trade
20,000
bananas for
16,000
pineapples with
ColumbiaColumbia.
Economic theory suggests countries benefit from international trade by producing more of those good and services for which they have a comparative advantage (and less of that for which a country does not have a comparative advantage). However, countries rarely specialize completely. Why?
Even with international trade, countries rarely specialize completely because
B.
goods and services cannot be traded internationally.
If
ChinaChina
trades
2,600
cell phones for
2,600
digital music players with
Germany,
then, with trade,
China
will be able to consume the same number of digital music players and
.2000
additional cell phones), and
Germany
will be able to consume the same number of cell phones and
1040
additional digital music players.
Autarky_____ is a situation in which a country does not trade with other countries. The terms of trade_____ is the ratio at which a country can trade its exports for imports from other countries
By trading, countries are able to consume more than they could without trade. This outcome is possible because
All of the Above
Who is harmed when individual nations move from autarky to free trade?
A.
The owners of the firms that went out of business.
One effect of tariffs and quotas
A.
is to cost jobs outside the industries immediately affected.
The diagram below shows the actual statistics for the U.S. sugar market in 2008 reflecting a quota of 3.6 billion pounds placed on U.S. imports. Complete the table below illustrating the welfare effects of this quota.
Loss of Consumer Surplus |
= |
Gain by U.S. Sugar Producers |
+ |
Gain to Foreign Sugar Producers |
+ |
Deadweight Loss |
A + B + C + D |
A |
B |
C + D |
As illustrated in the diagram to the right, when a nation moves from autarky to freetrade, economic surplus increases by the areas represented by
B.
C and D.
As a result of the
Tariff consumers will be
worse
off in terms of consumer surplus, and producers will be
better off in terms
The primary difference between a quota and a voluntary export restraint (VER) is that
A.
the quota is unilaterally imposed by one nation on the other while the VER is the result of negotiations between nations.
The diagram on the right represents a tariff imposed on an individual market. The total deadweight loss (loss in economic surplus) from this tariff is illustrated by areas
C and D
Some politicians argue that eliminating U.S. tariffs and quotas would help the U.S. economy only if other countries eliminated their tariffs and quotas in exchange.
D.
This statement is false; the U.S. economy would gain from t
Dumping
C.
is selling a product for a price below its cost of production.
What were the economic effects of the North American Free Trade Agreement (NAFTA)?
C.
increased about $400 per year for a family of four.
What do most economists find to be the most persuasive argument in favor of protectionism?
A.
Trade barriers protect infant industries that initially have relatively high costs.
Protectionism is the use of trade barriers to shield domestic firms from foreign competition. Protectionism is usually justified on the basis of several arguments whichinclude:
B.
saving jobs, protecting infant industries, and protecting national security.
One reason some oppose free trade and the reduction of trade barriers is protectionism.
What does old-fashioned protectionism seek to protect?
Protectionism traditionally seeks to use trade barriers to protect
A.
domestic
jobs
In 1999, at a meeting of the World Trade Organization in Seattle, Washington, a large number of people protested attempts to reduce trade barriers.
What is a reason why some would want to prevent trade barriers from being reduced?
Some want to prevent trade barriers from being reduced because they
D.
seek to protect domestic
infant industries
Many economists discourage restrictions on trade, emphasizing the costs associated with tariffs and quotas. However, the U.S. government still receives pressure from some to erect trade barriers, and some trade barriers are still in place.
Why would policymakers (such as those in Congress) understand the potential benefits from trade yet support trade restrictions?
B.
The costs of trade restrictions per consumer are small.
Why do some people oppose the World Trade Organization (WTO)?
All of the above
The World Trade Organization (WTO)
All of the Above
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