Deck 17: A: International Trade

Question 1

Cite three important reasons why nations trade.

Answer 1

First, specialization and trade among nations is advantageous because the world's resources are not evenly distributed.To obtain resources or products that a nation does not have but that are desired by society requires trade with other nations.Second, the efficient production of different commodities necessitates different methods and combinations of resources.These different methods and combinations can be obtained through trade.Third, products vary in quality and in other ways.People prefer this variety, which often can only be obtained through imports.

Question 2

Identify the four basic types of trade barriers and describe each of them.

Answer 2

The four types of trade barriers are tariffs (revenue tariffs and protective tariffs), import quotas, nontariff barriers, and voluntary export restrictions.Tariffs are excise taxes on imports.Governments may use them to generate revenue or to protect domestic producers from foreign competition.Import quotas specify the maximum amounts of imports allowed into a nation over a period of time.Nontariff barriers include licensing requirements, unreasonable standards, and bureaucratic red tape in customs procedures that restrict trade.Voluntary export restrictions are agreements where foreign firms "voluntarily" limit their exports to another nation.

Question 3

Answer the following questions regarding international trade:(a) What is the common myth regarding the benefits from international trade?(b) What is the associated implication arising from this myth?(c) What is the true benefit from international trade?

Answer 3

(a) It is a common myth that the greatest benefit to be derived from international trade is greater domestic employment in the export sector.(b) As an implication the myth suggests that exports are "good" because they increase domestic employment, whereas imports are "bad" because they deprive people of jobs at home.(c) The true benefit created by international trade is the overall increase in output available through specialization and exchange.

Question 4

Which is more effective in blocking imports, a tariff or a quota?

Question 5

In 2016, what were the top five exporting nations (measured in dollars)?

Question 6

How does relaxing the assumption of constant costs affect the comparative advantage argument for trade?

Question 7

Given the data in the graph below, which nation should specialize in steel production and which nation in wheat production? Why?

Question 8

The following table shows the domestic quantity demanded (Q_D) and quantity supplied (Q_S) of soybeans in Canada and Brazil at various prices (in Canadian dollars). (a) Complete the above table by indicating the size of exports or imports for each country at each price.(b) Suppose Canada and Brazil are closed economies.What is the domestic price of soybeans in Canada? What is the domestic price of soybeans in Brazil?(c) Suppose Canada and Brazil are the only countries in a two-nation world.What is the world price of soybeans? Is Canada an exporter or an importer at the world price? Is Brazil an exporter or an importer at the world price?

Question 9

The following table shows the domestic quantity demanded (Q_D) and quantity supplied (Q_S) of soybeans in Canada and Brazil at various prices (in Canadian dollars). (a) Complete the above table by indicating the size of exports or imports for each country at each price.(b) Suppose Canada and Brazil are closed economies.What is the domestic price of soybeans in Canada? What is the domestic price of soybeans in Brazil?(c) Suppose Canada and Brazil are the only countries in a two-nation world.What is the world price of soybeans? Is Canada an exporter or an importer at the world price? Is Brazil an exporter or an importer at the world price?

Question 10

How important is international trade for Canada?

Question 11

What are Canada's top four exports and imports?

Question 12

Answer the next three questions on the basis of the following production possibilities data for Narnia and Somosa.All figures are in thousands of units. (a) If trade occurs between Narnia and Somosa, which nation should export what product? Why?(b) What are the limits of the terms of trade between Narnia and Somosa?(c) Assume that prior to specialization and trade, Narnia and Somosa chose production possibility "C." Now each specializes according to comparative advantage.What will be the resulting gains from trade? Explain your answer.

Question 13

"The international flow of goods helps compensate for the international immobility of resources." Analyze and explain.

Question 14

What are the economic benefits of free trade?

Question 15

In what ways are national economies linked?

Question 16

Why has international trade grown rapidly since World War II?

Question 17

How can supply and demand analysis be used to explain the equilibrium price and quantity of exports and imports for aluminum when there is trade between two nations (e.g., the United States and Canada)?

Question 18

The table below shows the maximum amounts of food and clothing that two nations, A and B, can produce.Draw the production possibilities curve for A and B using the below graphs.Assume constant costs. (a) What is the cost ratio for the two products?(b) If each nation specializes according to comparative advantage, who should produce and trade each product? Why?(c) What will be the range for the terms of trade? If the terms are set at 1 food = 2 clothing, show how the trading possibilities lines will change in the graph.Explain.

Question 19

Suppose that by devoting all of its resources to the production of X, nation L can produce 40 X.By devoting all of its resources to Y it can produce 20 Y.Comparable figures for nation M are 15 X and 15 Y.According to the principle of comparative advantage, which nation will specialize in which product? What are the limits to the terms of trade?

Question 20

Answer the next three questions on the basis of the following production possibilities data for Francia and Galacia.All data are in tons. (a) If trade occurs between Francia and Galacia, which nation should export what product? Why?(b) What are the limits of the terms of trade between Francia and Galacia?(c) Assume that prior to specialization and trade, Francia and Galacia chose production possibility "C." Now each specializes according to comparative advantage.What will be the resulting gains from trade? Explain your answer.

Question 21

What is the problem with protecting industries in Canada from the dumping of foreign products on the domestic market?

Question 22

Evaluate the argument: "Restricting imports from other nations will save Canadian jobs."

Question 23

The next three questions refer to the information in the following table. (a) What would price and quantity be if the market were closed to international trade? What would the domestic and foreign quantity supplied be if it were open to international trade and the world price was $2?(b) If the world price was $2 and a tariff of $1 were placed on the product, what would be the total revenues going to domestic producers, foreign producers (after-tax), and the government? Explain.(c) Given a world price of $2, what would be the difference in the total revenue received by foreign producers with a $1 per unit tariff compared with a quota of 200 units?

Question 24

What is the problem associated with the importing of goods by high-income nations from low-income nations? Explain how consumer organisations in high-income nations have tried to circumvent this problem.

Question 25

Explain and evaluate the validity of the self-sufficiency argument for trade protection.

Question 26

How do protectionist policies affect consumers, workers, producers, and the government? Explain.

Question 27

Of all the reason for protests against the WTO, which are most substantive?

Question 28

The next three questions refer to the information in the following table. (a) What would price and quantity be if the market were closed to international trade? What would the domestic and foreign quantity supplied be if it were open to international trade and the world price was $4?(b) If the world price was $4 and a tariff of $2 were placed on the product, what would be the total revenues going to domestic producers, foreign producers (after-tax), and the government? Explain.(c) Given a world price of $4, what would be the difference in the total revenue received by foreign producers with a $2 per unit tariff compared with a quota of 20,000 units?

Question 29

Who gains and who loses from a protective tariff? Explain.

Question 30

Evaluate the validity of the argument that a new industry in a nation needs protection from foreign competition if it is to prosper.

Question 31

Evaluate this argument for a trade barrier: "Canada needs protection from cheap foreign labour."

Question 32

Critique the argument that trade protection is needed to protect Canadian jobs.

Question 33

Evaluate the statement: "Tariffs and quotas are needed to protect Canadian products from dumping."

Question 34

Explain the myth behind why buying Canadian and how this does or does not improve the Canadian economy.

Question 35

How can Canada compete successfully with relatively low-wage nations such as India and China?

Question 36

Why might trade barriers be a highly ineffective technique for increasing domestic employment?

Question 37

What are the benefits of having a common currency such as the Euro?

Question 38

What are the similarities and differences in the economic effects of tariffs and quotas?

Question 39

What are the net costs of tariffs and quotas on consumption and income distribution?

Question 40

What are the limitations to the diversification for stability argument for trade protection?