Deck 15: International Trade Policy

Question 1

In the news clip in the Problem, who will gain and who will lose from the trade in goods that the news clip predicts?
The End of Cheap Chinese Goods
Beginning in the 1990s, as China emerged as a major exporter, the prices of many goods fell. For example, clothing prices fell through 2007 when they bottomed out. But as China's labor costs started to rise, clothing production moved from China to other countries.
a. Explain why China emerged as a major exporter of clothing through 2007.
b. Explain why cheap Chinese goods are disappearing. Explain why China no longer exports cheap clothing.

Answer 1

Gain from trade:
Country C's gain is attained from its cloth exports. Consumers get cloths at cheaper rate due to its cheaper price level and low cost of production than the domestic country.
Hence, the producer of Country C is benefitted from the export as there supply increases than the domestic country.
Loss from trade:
The cloth producers of rest of the world would face loss due to import of cloth from Country C. Since Country C's cloth is cheaper, the other world's cloth producers share of market decreases. This decreasing share of market leads to decrease in the employment that in turn reduces the wage for the cloth employees.
The consumers in the Country C would also face loss. Since Country C exports cloth to rest of the world, the availability of cloth to the domestic consumer may decrease that in turn increase the price of the cloth in Country C. Therefore, the Chinese consumers have to pay higher price because of trade.

Question 2

How Global Markets Work
Suppose that the world price of steel is $100 a ton, India does not trade internationally, and the equilibrium price of steel in India is $60 a ton. India then begins to trade internationally.
a. How does the price of steel in India change?
b. How does the quantity of steel produced in India change
c. How does the quantity of steel bought by India change
d. Does India export or import steel and why

Answer 2

(a) If India starts trading then its price increases from $60 to $100 a ton of steel.
(b) Since the world price is higher than the domestic price of $60, so quantity produced will increase as suppliers will be benefitted from increased prices.
(c) Quantity of steel bought by India will change and decrease if it buys at a world price of $100 instead of $60 in the domestic market.
(d) India will export steel as its price is higher in comparison to domestic price. So, suppliers will be benefitted.

Question 3

Use the information on the U.S. wholesale market for roses in the Problem to
a. Explain who gains and who loses from free international trade in roses compared to a situation in which Americans buy only roses grown in the United States.
b. Draw a graph to illustrate the gains and losses from free trade.
c. Calculate the gain from international trade.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.

Answer 3

(a) Rose growers will lose as cheap cost of roses can now be imported from abroad. However, consumers gain because now they are getting the rose at a cheaper cost in comparison to before. Due to this their demand will increase.
(b) The below graph represents the equilibrium prices without international trade and with international trade.
The demand curve D US and the supply curve S US show the demand and supply in the US domestic market only. The demand curve tells us the quantity of roses that Americans are willing to buy at various prices. The supply curve tells us the quantity of roses that US makers are willing to sell at various prices.
The increase in demand from 6 million to 12 million and the reduction in prices from $175 to $125 is the gains from trade. However, loss is of 4 million to the US rose growers as initially they were supplying 6 million but now only 2 million.
(c) 10 million has been imported due to international trade. So, amount will $1,250 million which is the gains from international trade.

Question 4

How Global Markets Work
A semiconductor is a key component in your laptop, cell phone, and iPod. The table provides information about the market for semiconductors in the United States.
Producers of semiconductors can get $18 a unit on the world market.
a. With no international trade, what would be the price of a semiconductor and how many semiconductors a year would be bought and sold in the United States?
b. Does the United States have a comparative advantage in producing semiconductors

Question 5

Use the following news clip to work the Problem.
Steel Tariffs Appear to Have Backfired on Bush
President Bush set aside his free-trade principles last year and imposed heavy tariffs on imported steel to help out struggling mills in Pennsylvania and West Virginia. Some economists say the tariffs may have cost more jobs than they saved, by driving up costs for automakers and other steel users.
a. Explain how a high tariff on steel imports can help domestic steel producers.
b. Explain how a high tariff on steel imports can harm steel users.

Question 6

How Global Markets Work
Act Now, Eat Later
The hunger crisis in poor countries has its roots in U.S. and European policies of subsidizing the diversion of food crops to produce biofuels like corn-based ethanol. That is, doling out subsidies to put the world's dinner into the gas tank.
a. What is the effect on the world price of corn of the increased use of corn to produce ethanol in the United States and Europe?
b. How does the change in the world price of corn affect the quantity of corn produced in a poor developing country with a comparative advantage in producing corn, the quantity it consumes, and the quantity that it either exports or imports

Question 7

Use the following news clip to work the Problem.
Steel Tariffs Appear to Have Backfired on Bush
President Bush set aside his free-trade principles last year and imposed heavy tariffs on imported steel to help out struggling mills in Pennsylvania and West Virginia. Some economists say the tariffs may have cost more jobs than they saved, by driving up costs for automakers and other steel users.
Draw a graph of the U.S. market for steel to show how a high tariff on steel imports
i. Helps U.S. steel producers.
ii. Harms U.S. steel users.

Question 8

How Global Markets Work
Explain why the U.S. and European policies of subsidizing the production of corn creates a social loss for a poor developing country that has a comparative advantage in producing corn.

Question 9

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
If the United States puts a tariff of $25 per container on imports of roses, explain how the U.S. price of roses, the quantity of roses bought, the quantity produced in the United States, and the quantity imported change.

Question 10

How Global Markets Work
Use the following news clip to work the Problem.
South Korea to Resume U.S. Beef Imports
South Korea will reopen its market to most U.S. beef. South Korea banned imports of U.S. beef in 2003 amid concerns over a case of mad cow disease in the United States. The ban closed what was then the third-largest market for U.S. beef exporters.
a. Explain how South Korea's import ban on U.S. beef affected beef producers and consumers in South Korea.
b. Draw a graph of the market for beef in South Korea to illustrate your answer to part (a). Identify the Korean winners and losers from this policy. Is this policy in Korea's interest

Question 11

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
Who gains and who loses from this tariff?

Question 12

How Global Markets Work
Use the following news clip to work Problem.
South Korea to Resume U.S. Beef Imports
South Korea will reopen its market to most U.S. beef. South Korea banned imports of U.S. beef in 2003 amid concerns over a case of mad cow disease in the United States. The ban closed what was then the third-largest market for U.S. beef exporters.
a. Assuming that South Korea is the only importer of U.S. beef, explain how South Korea's import ban on U.S. beef affected beef producers and consumers in the United States.
b. Draw a graph of the market for beef in the United States to illustrate your answer to part (a). Does anyone in the United States gain from Korea's policy

Question 13

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
Draw a graph of the U.S. market for roses to illustrate the gains and losses from the tariff and on the graph identify the gains and losses, and the tariff revenue.

Question 14

International Trade Restrictions
Use the following information to work the Problem.
Before 1995, trade between the United States and Mexico was subject to tariffs. In 1995, Mexico joined NAFTA and all U.S. and Mexican tariffs have gradually been removed.
Explain how the price that U.S. consumers pay for goods from Mexico and the quantity of U.S. imports from Mexico have changed. Who are the winners and who are the losers from this free trade?

Question 15

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
If the United States puts an import quota on roses of 5 million containers, what happens to the U.S. price of roses, the quantity of roses bought, the quantity produced in the United States, and the quantity imported?

Question 16

International Trade Restrictions
Use the following information to work the Problem.
Before 1995, trade between the United States and Mexico was subject to tariffs. In 1995, Mexico joined NAFTA and all U.S. and Mexican tariffs have gradually been removed.
Explain how the quantity of U.S. exports to Mexico and the U.S. government's tariff revenue from trade with Mexico have changed.

Question 17

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
Who gains and who loses from this quota?

Question 18

Use the following information to work the Problem.
Before 1995, trade between the United States and Mexico was subject to tariffs. In 1995, Mexico joined NAFTA and all U.S. and Mexican tariffs have gradually been removed.
Suppose that in 2013, tomato growers in Florida lobby the U.S. government to impose an import quota on Mexican tomatoes. Explain who in the United States would gain and who would lose from such a quota.

Question 19

Use the information on the U.S. wholesale market for roses to Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
Draw a graph to illustrate the gains and losses from the import quota and on the graph identify the gains and losses, and the importers' profit.

Question 20

International Trade Restrictions
Use the following information to work the Problem.
Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China.
Explain how the tariff on textiles will change the price that U.S. buyers pay for textiles, the quantity of textiles imported, and the quantity of textiles produced in the United States.

Question 21

Use the following information to work the Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
a. Without international trade, what would be the price of a container of roses and how many containers of roses a year would be bought and sold in the United States?
b. At the price in your answer to part (a), does the United States or the rest of the world have a comparative advantage in producing roses

Question 22

Use the following news clip to work Problem.
Car Sales Go Up as Prices Tumble
Car affordability in Australia is now at its best in 20 years, fueling a surge in sales as prices tumble. In 2000, Australia cut the tariff to 15 percent and on January 1, 2005, it cut the tariff to 10 percent.
Explain who gains and who loses from the lower tariff on imported cars.

Question 23

International Trade Restrictions
Use the following information to work the Problem.
Suppose that in response to huge job losses in the U.S. textile industry, Congress imposes a 100 percent tariff on imports of textiles from China.
Explain how the U.S. and Chinese gains from trade will change. Who in the United States will lose and who will gain?

Question 24

Use the following information to work the Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
If U.S. wholesalers buy roses at the lowest possible price, how many do they buy from U.S. growers and how many do they import?

Question 25

Use the following news clip to work Problem.
Car Sales Go Up as Prices Tumble
Car affordability in Australia is now at its best in 20 years, fueling a surge in sales as prices tumble. In 2000, Australia cut the tariff to 15 percent and on January 1, 2005, it cut the tariff to 10 percent.
Draw a graph to show how the price of a car, the quantity of cars bought, the quantity of cars produced in Australia, and the quantity of cars imported into Australia changed.

Question 26

International Trade Restrictions
Use the following information to work the Problem.
With free trade between Australia and the United States, Australia would export beef to the United States. But the United States imposes an import quota on Australian beef.
Explain how this quota influences the price that U.S. consumers pay for beef, the quantity of beef produced in the United States, and the U.S. and the Australian gains from trade.

Question 27

Use the following information to work the Problem.
Wholesalers of roses (the firms that supply your local flower shop with roses for Valentine's Day) buy and sell roses in containers that hold 120 stems. The table provides information about the wholesale market for roses in the United States. The demand schedule is the wholesalers' demand and the supply schedule is the U.S. rose growers' supply.
Wholesalers can buy roses at auction in Aalsmeer, Holland, for $125 per container.
Draw a graph to illustrate the U.S. wholesale market for roses. Show the equilibrium in that market with no international trade and the equilibrium with free trade. Mark the quantity of roses produced in the United States, the quantity imported, and the total quantity bought.

Question 28

Use the following news clip to work the Problem.
A New Food Crisis Is on Our Plates
Over the past year the price of corn has risen 52 percent, wheat 49 percent, and soybeans 28 percent. Alarmed at spiking food prices, a score of countries, including Russia and Ukraine, have banned food exports to make sure they can feed their own people first.
a. What are the benefits to a country from importing food?
b.What costs might arise from relying on imported food

Question 29

International Trade Restrictions
Use the following information to work the Problem.
With free trade between Australia and the United States, Australia would export beef to the United States. But the United States imposes an import quota on Australian beef.
Explain who in the United States gains from the quota on beef imports and who loses.

Question 30

Use the following news clip to work the Problem.
Underwater Oil Discovery to Transform Brazil into a Major Exporter
A huge underwater oil field discovered late last year has the potential to transform Brazil into a sizable exporter. Fifty years ago, Petrobras was formed as a trading company to import oil to support Brazil's growing economy. Two years ago, Brazil reached its long-sought goal of energy self-sufficiency.
Describe Brazil's comparative advantage in producing oil and explain why its comparative advantage has changed.

Question 31

Use the following news clip to work the Problem.
A New Food Crisis Is on Our Plates
Over the past year the price of corn has risen 52 percent, wheat 49 percent, and soybeans 28 percent. Alarmed at spiking food prices, a score of countries, including Russia and Ukraine, have banned food exports to make sure they can feed their own people first.
If a country restricts food exports, what effect does this restriction have in that country on the price of food, the quantity of food it produces, the quantity of food it consumes, and the quantity of food it exports?

Question 32

The Case Against Protection
Trading Up
The cost of protecting jobs in uncompetitive sectors through tariffs is high: Saving a job in the sugar industry costs American consumers $826,000 in higher prices a year; saving a dairy industry job costs $685,000 per year; and saving a job in the manufacturing of women's handbags costs $263,000.
a. What are the arguments for saving the jobs mentioned in this news clip?
b. Explain why these arguments are faulty.
c. Is there any merit to saving these jobs

Question 33

Use the following news clip to work the Problem.
Underwater Oil Discovery to Transform Brazil into a Major Exporter
A huge underwater oil field discovered late last year has the potential to transform Brazil into a sizable exporter. Fifty years ago, Petrobras was formed as a trading company to import oil to support Brazil's growing economy. Two years ago, Brazil reached its long-sought goal of energy self-sufficiency.
a. Draw a graph to illustrate the Brazilian market for oil and explain why Brazil was an importer of oil until a few years ago.
b. Draw a graph to illustrate the Brazilian market for oil and explain why Brazil may become an exporter of oil in the near future.

Question 34

Chinese Tire Maker Rejects U.S. Charge of Defects
U.S. regulators ordered the recall of more than 450,000 faulty tires. The Chinese producer of the tires disputed the allegations and hinted that the recall might be an effort by foreign competitors to hamper Chinese exports to the United States. Mounting scrutiny of Chinese-made goods has become a source of new trade frictions between the United States and China and fueled worries among regulators, corporations, and consumers about the risks associated with many products imported from China.
a. What does the information in the news clip imply about the comparative advantage of producing tires in the United States and China?
b. Could product quality be a valid argument against free trade
c. How would the product-quality argument against free trade be open to abuse by domestic producers of the imported good

Question 35

After you have studied Reading Between the Lines on pp. 388-389, answer the following questions.
a. What events put U.S. solar panel producers under pressure?
b. Explain how a tariff on solar panel imports changes domestic production, consumption, and imports of solar panels.
c. Illustrate your answer to part (b) with an appropriate graphical analysis assuming that imports are not completely eliminated.
d. Explain how a U.S. tariff on solar panel imports produces winners and losers in the United States and why the losses exceed the gains.

Question 36

The End of Cheap Chinese Goods
Beginning in the 1990s, as China emerged as a major exporter, the prices of many goods fell. For example, clothing prices fell through 2007 when they bottomed out. But as China's labor costs started to rise, clothing production moved from China to other countries.
a. Explain why China emerged as a major exporter of clothing through 2007.
b. Explain why cheap Chinese goods are disappearing. Explain why China no longer exports cheap clothing.

Question 37

How Global Markets Work
Suppose that the world price of sugar is 10 cents a pound, the United States does not trade internationally, and the equilibrium price of sugar in the United States is 20 cents a pound. The United States then begins to trade internationally.
a. How does the price of sugar in the United States change?
b. Do U.S. consumers buy more or less sugar
c. Do U.S. sugar growers produce more or less sugar
d. Does the United States export or import sugar and why

Question 38

Economics in the News
Aid May Grow for Laid-Off Workers
Expansion of the Trade Adjustment Assistance (TAA) program would improve the social safety net for the 21st century, as advances permit more industries to take advantage of cheap foreign labor-even for skilled, white-collar work. By providing special compensation to more of globalization's losers and retraining them for stable jobs at home, an expanded program could begin to ease the resentment and insecurity arising from the new economy.
a. Why does the United States engage in international trade if it causes U.S. workers to lose their jobs?
b. Explain how an expansion of the TAA program will make it easier for the United States to move toward freer international trade.