Study Guide II

1.  How is the comparative advantage of a country determined?

2.  What role does the marginal rate of transformation play in determining comparative advantage?

3.  How are the production and consumption gains from trade determined?  (Graph)

4.  How is the trade triangle determined?  (Graph)

5.  How are the equilibrium terms of trade determined?

6.  How are the commodity terms of trade calculated?

7.  How might productivity growth lead to a change in comparative advantage?  (Graph)

8.  How is trade determined under increasing-cost conditions?  (Graph)

9.  How does outsourcing lead to downward pressure on wages?  (Graph)

10.  What are the implications of the Heckscher-Ohlin Theory in terms of comparative advantage?

11.  How is equilibrium determined determined under the Factor Endowment Theory?  (Graph)

12.  How would trade lead to the equalization of relative factor prices?

13.  Why do wages continue to differ across countries?

14.  What is the impact of trade on the distribution of income between skilled and unskilled workers?  (Graph)

15.  What are the pros and cons of immigration in terms of the labor force?

16.  How are trade patterns explained by increasing returns to scale and specialization?

17.  How are trade patterns explained by overlapping demands?

18.  What are the reasons for intraindustry trade?

19.  How are trade patterns explained by the product life cycle theory?

20.  What are the pros and cons of using industrial policy?

21.  What is the impact of government regulatory policies on trade?  (Graph)

22.  How does the inclusion of transportation costs affect the amount of trade between two countries?  (Graph)

23.  What is the difference between a protective tariff and a revenue tariff?

24.  What is the difference between a specific tariff, an ad valorem tariff, and a compound tariff?

25.  How is the effective rate of protection for a tariff determined?

26.  How does the offshore-assembly provision allow firms to avoid tariffs?

27.  What is the welfare impact of tariffs in the small nation case?  (Graph)

28.  What is the welfare impact of tariffs in the large nation case?  (Graph)

29.  What is the impact of tariffs on exporters?  (Graph)

30.  What are the arguments for and against protectionism?

31.  Why does the political system tend to be biased in favor of protectionism?

32.  What are the welfare effects of quotas?  (Graph)

33.  How does the impact of quotas compare with that of tariffs when demand is growing?  (Graph)

34.  What are the welfare effects of a tariff-rate quota (two-tier tariff)?  (Graph)

35.  What is an export quota, and what impact does it have?

36.  What is the effect of domestic content requirements?  (Graph)

37.  What is the effect of a domestic subsidy?  (Graph)

38.  What is the effect of an export subsidy?  (Graph)

39.  What are the different forms of dumping?

40.  How is the equilibrium determined in the case of international price discrimination?  (Graph)

41.  What are some other nontariff trade barriers?

42.  What are the different types of regional trading arrangements?

43.  What are some of the reasons for the development of regional trading arrangements?

44.  What are the static effects of a regional trading arrangement?  (Graph)

45.  What are the dynamic effects of a regional trading arrangement?

46.  What were the convergence criteria that were necessary to allow the European Union to go forward?

47.  When is an optimum currency area most likely to succeed?

48.  What are the advantages and disadvantages of having a common currency?

49.  Who were the winners and losers in Canada and Mexico as a result of NAFTA?

50.  Who were the winners and losers in the U.S. as a result of NAFTA?

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Recommended Problems

Chapter 2:

1.  The maximum amount of steel or aluminum that Canada and France can produce is given below (quantity is in tons):

a.  Calculate the MRT of steel into aluminum for each nation.

b.  According the principle of comparative advantage, which product should each country produce?

c.  Within what limits will the terms of trade occur?

d.  In the absence of trade, Canada started with 600 tons of aluminum and 300 tons of steel and France with 400 tons of aluminum and 600 tons of steel.  If the terms of trade are 1 steel = 1 aluminum and 500 tons of each are traded, show the gains from trade in this situation.

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2.  The hypothetical export price indexes and import price indexes for Japan, Canada, and Ireland are given below (2000 = 100):

a.  Compute the commodity terms of trade for each country for 2000 - 2015.

b.  Which country's terms of trade improved, worsened, or showed no change during this period?

Chapter 3:

3.  The schedule below shows the supply and demand schedule for calculators in Taiwan and South Korea:

a.  In the absence of trade, what are the equilibrium prices and quantities in each country?

b.  If there are no transportation costs, what would the price be as a result of trade between the two countries?  How many calculators would be traded at this price and from which country to which country?  How many calculators are produced and consumed in each country?

c.  Suppose the cost of transporting each calculator is $5.  What will be the price of calculators in each country in this situation?  How many calculators will each country produce, consume, and trade?

Chapter 4:

4.  Suppose that the production of $1,000,000 worth of steel in Canada requires $100,000 worth of taconite.  Canada's nominal tariff rates for importing these goods are 20 percent for steel and 10 percent for taconite.  Calculate the effective rate of protection for Canada's steel industry.

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5.  It would be helpful if you drew the graph of this.  Assume that Australia is a "small" country and thus unable to influence the world price of TVs.  Its demand and supply schedules are below:

a.  Suppose there is no trade (autarky).

(1)  What is the equilibrium price and quantity?

(2)  Calculate the consumer and producer surplus in this situation.

b.  Suppose Australia can import TVs at $100 each. 

(1)  How many TVs will be produced, consumed, and imported?

(2)  Calculate the consumer and producer surplus in this situation.

c.  To protect its TV producers, suppose the Australian government imposes a specific tariff of $100 on imported TVs.

(1)  How many TVs will be produced, consumed, and imported?

(2)  Calculate the value of the tariff's consumption, protective, redistributive, and revenue effects. 

(3)  What is the amount of the deadweight loss.

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6.   It would be helpful if you drew the graph of this.  Assume that the United States is a "large" country and thus able to influence the world price of steel, which it imports.  Its demand and supply schedules are below:

a.  Suppose there is free trade.  What would the equilibrium price be?  How much steel will be produced, consumed, and imported?

b.   To protect its steel producers, the U.S. imposes a specific tariff of $300 per ton on steel.

(1)  What would the equilibrium price be?  How much steel will be produced, consumed, and imported?

(2)  Calculate the value of the tariff's consumption, protective, redistributive, and domestic revenue effects.

(3)  What is the deadweight loss in this situation?

(4)  Calculate the terms-of-trade effect.  What impact did the tariff have on the overall welfare of the U.S.?

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Answers to recommended problems