ECON 2010 Lecture Notes - Lecture 17: North American Free Trade Agreement, Customs War, General Agreement On Tariffs And Trade

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6 Oct 2018

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ECON 2010 Lecture Notes - Lecture 16: Luxury Goods, Tax Rate, Economic Surplus

ECON 2010 Lecture Notes - Lecture 17: North American Free Trade Agreement, Customs War, General Agreement On Tariffs And Trade

ECON 2010 Lecture Notes - Lecture 18: Social Cost, Salad Bar, Equilibrium Point

Document Summary

Review from chapter 3: a country has a comparative advantage in a good. If it produces the good at lower opportunity cost than other countries: countries can gain from trade. If each exports the goods in which it has a comparative advantage: the equilibrium without trade, only domestic buyers and sellers, equilibrium price and quantity, determined on the domestic market, total benefits, consumer surplus, producer surplus. World price and comparative advantage: pw = the world price of a good, the price that prevails in world markets, pd = domestic price without trade. If pd < pw: domestic country has comparative advantage, country exports the good, producers are responding (selling their products in a market where they can make more money) If pd > pw: domestic country does not have comparative advantage, country imports the good, buyers are responding (buying from a different country where it is cheaper for them)

Related Questions

Mention if the following statements are true or false. Explain clearly why, using ideas and concepts.

a. Under free trade, one country gains at the expense of the other.

b. The theory of comparative advantage states that free trade benefits all countries.

c. The Neo-classical trade theory states that trade arises due to different amounts of labor and capital in a country.

d. The H-O theory states that trade arises due to different PPFs in a country.

e. Under free trade, prices fall, so trade becomes easier.

f. A country should not have any imports and should increase exports if it wants to increase its employment levels.

g. Adam Smith recommended very strong government regulation of trade.

h. A country with higher labor productivity than another country will have a comparative advantage in the production of all goods.

i. The Theory of absolute advantage explains producer and consumer equilibriums under free trade.

j. Developed countries do not gain under free trade with developing countries.

skywasp336

1. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

Is the statement true or false?

2. When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that:

	a.	The domestic price will fall after trade opens up.
	b.	The total surplus for this good will increase as a result of opening up the market to international trade.
	c.	Opening the market to international trade will create a deadweight loss.
	d.	Both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade.

cyanturtle416

Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.

A. Which of the following statements is true?

a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges

b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges

c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges

d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges

B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?

a. $3

b. $4

c. $3.5

C. After opening up to trade, the level of exports/imports for the country will be:

a. 8,000 lbs.

b. 12,000 lbs.

c. 10,000 lbs.

d. 4,000 lbs.

D. How much (in $) is the net gain from trade for this country in opening up to free trade?

coralbadger702

ECON 2010 Lecture Notes - Lecture 17: North American Free Trade Agreement, Customs War, General Agreement On Tariffs And Trade

ECON 2010 Lecture Notes - Lecture 16: Luxury Goods, Tax Rate, Economic Surplus

ECON 2010 Lecture Notes - Lecture 17: North American Free Trade Agreement, Customs War, General Agreement On Tariffs And Trade

ECON 2010 Lecture Notes - Lecture 18: Social Cost, Salad Bar, Equilibrium Point

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