ECON 1B03 Lecture Notes - Lecture 9: International Trade, Comparative Advantage, Import Quota

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International trade (cid:498)works(cid:499) due to comparative advantage enjoyed by. Comparative advantage: all countries can benefit from trading with one trading partners. another because trade allows each country to specialize in doing what it does best. Textiles are made in many countries around the world. Policy makers often consider trade reistrictions on textiles to protest domestic producters from foreign competitiors. Question 1 price and quantity with trade: world price: price of good or service that prevails in the world market for that good or service, comparison of world domestic prices will indicate comparative advantage or disadvantage. No buyer would pay economy. more than world price: when domestic equilibrium price before trade is below the world price the domestic price rises to equal the world price once free trade is allowed. After the domestic price has risen to equal to the world price, the domestic quantity supplied differs from the domestic quantity demanded.

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Q2. (35 points) The following table shows the output of textile and auto one unit of labor can produce in the U.K. and the U.S.:

	Textiles	Autos
United Kingdom	16	4
United States	6	3

A)Which country has an absolute advantage in textiles and which country has an absolute advantage in autos?

B)What is the autarky price ratio of autos relative to textiles in each country?

C)Which country has a comparative advantage in textiles and which country has a comparative advantage in autos?

D)Which product should each country export?

E)Suppose the United States has 300 units of labor available. Construct the production-possibilities frontier (PPF) and identify the optimal autarky equilibrium (using an indifference curve) for the United States.

F)Suppose the international price is set at 1 auto:3 units of textile and the U.S. decides to completely specialize at producing the product in which it has a comparative advantage. How would the above graph change? Use the graph to show the gains from trade and the export and import quantities. For each unit of export good, how much does the U.S. gain (measured in terms of the other good)?

G)Discussion: At what level of international price ratio will all the benefits from trade accrue to the United States?

Your answer:

raspberrymole776

4. Assume that Thailand and India are potential trading partners of China. Thailand is a member of ASEAN but India is not. Suppose the import price of textiles from India (PIndia) is 50 per unit under free trade and is subject to a 20% tariff. As of January 1st 2010, China and Thailand entered into the China-ASEAN freetrade area, eliminating tariffs on Thai imports. Use the following figure to answer these questions:

a. Before the China-ASEAN free-trade area, how much does China import from each trading partner? What is the import price? Calculate the tariff revenue.

b. After the China-ASEAN free-trade area, how much does China import from each trade partner? What is the import price? What is the total tariff revenue of China?

c. Based on your answer to part (b), what is the impact of the China-ASEAN free-trade area on the welfare of China?

d. What is the effect of the China-ASEAN free-trade area on the welfare of Thailand and India?

e. As mentioned in the Headlines: China-ASEAN Treaty Threatens Indian Exporters, the China-ASEAN agreement may lead to a similar one between China and India. How would this affect China

bronzetoad670

Question 1

In 2003, the ________ ruled that U.S. tariffs on steel imported from the EU were unfair and allowed the EU to issue retaliatory tariffs on U.S. products.

World Trade Organization

United Nations

European Central Bank

International Human Rights Commission

Question 2

The idea of the U.S.-Canadian Free-Trade Agreement that ________ barriers to trade including tariffs and quotas between the United States and Canada by 1998 was to increase the amount that the United States exports to Canada and the amount that the United States imports from Canada.

increased all

removed some

removed all

increased some

Question 3

According to the theory of comparative advantage, a country should specialize and ________ goods with ________ opportunity cost.

import; the lowest

import; negative

export; the lowest

export; the highest

Question 4

A quota is a restriction on imports.

True

False

Question 5

If Holland decreases subsidies to its tulip growers, the price of tulips in the United States will rise.

True

False

Question 6

According to comparative advantage, trade between two countries allows ________ of the trading countries to use its resources most efficiently.

only the smaller

only the larger

neither

each

Question 7

________ U.S. president(s) who has/have held office since GATT was signed has argued for free-trade policies, yet each one has used his powers to protect various sectors of the economy.

Only one

No

Every

Only 3

Question 8

In 1991, the European Union began the process of forming the

		largest free-trade zone in the world.
		only continental military force in the world.
		first international trade agreement in the world.
		first unified currency in the world.

Question 9
1. The Smoot-Hawley tariff set off an international trade war in the
  
  1930s.
  
  1950s.
  
  1970s.
  
  1990s.
  
  Please help me with these questions Thank you.

magentadeer293

ECON 1B03 Lecture Notes - Lecture 9: International Trade, Comparative Advantage, Import Quota

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