ECO 1102 Chapter Notes - Chapter 9: Comparative Advantage, Economic Surplus, Import Quota
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2. Winners and losers from free trade
Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $21. Suppose that the world price for a meeker is $22. Assume that Meekertown is too small to influence the world price for meekers once they enter the international market.
If Meekertown allows free trade, then it will meekers.
Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false.
Statement | True | False | |
---|---|---|---|
Meekertownian consumers are worse off under free trade than they were before. | |||
Meekertownian producers are worse off under free trade than they were before. |
True or False: When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.
True
False
1. An import tariff
a. lowers the domestic price of the exported good below the world price. |
b. keeps the domestic price of the exported goods the same as the world price. |
c. raises the domestic price of the imported good above the world price |
d. lowers the domestic price of the imported good below the world price. |
2. Which two accounts are included in the balance of payments:
a. current account and the reserve account. |
b. current account and the trade account. |
c. current account and the capital account. |
d. trade account and the capital account. |
3. A producer has a comparative advantage in the production of a good when the producer:
a. has a production cost that is less than sales revenue. |
b. has the highest cost of production compared to any other producer. |
c. is comparatively more efficient at producing the good than it is at producing anything else. |
d. specializes through the use of an assembly line. |
4. According to the Fischer effect, if the "real" rate of interest in a country is 4 percent and expected annual inflation is 9 percent, the "nominal" interest rate will be _____.
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C. 9 percent |
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D. 36 percent |