Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 3

Refer to Table 1 in the chapter. Suppose the terms of trade are two and a half T-shirts for each bushel of soybeans (instead of three for one as in the chapter). As in the chapter,assume the United States increases soybean production by 100 million bushels and exports 80 million of them to China,and that China decreases its own soybean production by 50 million bushels. Some of the remaining numbers in the table will have to change to be consistent with these new specifications. Then,answer each of the following questions.
a. Does China still gain from trade? Explain briefly.
b. Does the United States still gain from trade? Explain briefly.
c. Compare the effects of trade for China under the new and old terms of trade. In which case does China fare better? Explain briefly.
d. Compare the effects of trade for the United States under the new and old terms of trade. In which case does the United States fare better? Explain briefly
Table 1