This question looks at the theory of comparative advantage. Imagine a world in which there are just two countries, F and G, and just two goods, X and Y.  Consider the following six situations. Each one shows that the two countries can produce for a given number of resources. Assume constant costs. In each case give the (pre-trade) opportunity cost of X in terms of Y. (a) Country F: 10 units of X or 20 units of Y. 1X = ................. Y Country G: 10 units of X or 10 units of Y. 1X = ................. Y (b) Country F: 12 units of X or 12 units of Y. 1X = ................. Y Country G: 6 units of X or 8 units of Y. 1X = ................. Y (c) Country F: 8 units of X or 8 units of Y. 1X = ................. Y Country G: 10 units of X or 10 units of Y. 1X = ................. Y

ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
icon
Related questions
Question

1) This question looks at the theory of comparative advantage. Imagine a world in which there are just two countries, F and G, and just two goods, X and Y.  Consider the following six situations. Each one shows that the two countries can produce for a given number of resources. Assume constant costs. In each case give the (pre-trade) opportunity cost of X in terms of Y.

(a) Country F: 10 units of X or 20 units of Y. 1X = ................. Y

Country G: 10 units of X or 10 units of Y. 1X = ................. Y

(b) Country F: 12 units of X or 12 units of Y. 1X = ................. Y

Country G: 6 units of X or 8 units of Y. 1X = ................. Y

(c) Country F: 8 units of X or 8 units of Y. 1X = ................. Y

Country G: 10 units of X or 10 units of Y. 1X = ................. Y

(d) Country F: 20 units of X or 5 units of Y. 1X = ................. Y

Country G: 18 units of X or 2 units of Y. 1X = ................. Y

(e) Country F: 10 units of X or 8 units of Y. 1X = ................. Y

Country G: 6 units of X or 6 units of Y. 1X = ................. Y

(f) Country F: 2 units of X or 4 units of Y. 1X = ................. Y

Country G: 3 units of X or 6 units of Y. 1X = ................. Y

2) Referring to the six different situations given in Q1, and assuming no transport costs:

(a) In which situations will country F export good X and import good Y? .............................

(b) In which situations will country F export good Y and import good X? ..............................

(c) In which situations will country F export both goods? ..............................

(d) In which situations will country F import both goods? ..............................

(e) In which situations will no trade take place? ...............................

3) In situation (a) in Q1, assume that before trade the price ratios of the two goods were equal to their opportunity cost ratios.

(a) What would the pre-trade price ratio (PX/PY) be in country F? ............

(b) What would the pre-trade price ratio (PX/PY) be in-country G? ...........

(c) Now assume that trade is opened up and that 1 unit of X exchanges for 1.5 of Y.

Demonstrate how both countries have gained.

.................................................................................................................................................

.................................................................................................................................................

4) The following are various methods of intervening in trade:

(i) Tariffs (ii) Quotas (iii) Exchange controls (iv) Import licensing (v) Export subsidies (vi) Embargoes (vii) Administrative barriers

Match each of the above to the following:

(a) A ban on the importation of illegal drugs ..................

(b) A government-imposed restriction on the number of cars that may be imported from Japan .......

(c) The dumping of surplus EU wheat at artificially low prices on the international market. ...............

(d) The exclusion of imports that do not meet rigid safety standards .........

(e) Customs duties on tobacco and alcoholic drinks ..................

(f) A tax imposed by the government on foreign currency deals ..................

(g) The granting of import permits solely to officially recognised importers ..................

5) What is fallacious about the following two arguments? Is there any truth in either?

(a) ‘Imports should be reduced because money is going abroad which would be better spent at home

...............................................................................................................................................

................................................................................................................................................

(b) ‘We should protect our industries from being undercut by imports produced using cheap labour.’

...............................................................................................................................................

................................................................................................................................................

6) Explain the WTO’s rules on each of the following:

(a) Non- discrimination

...............................................................................................................................................

(b) Reciprocity

................................................................................................................................................

(c) Quotas

................................................................................................................................................

(d) Fair competition

................................................................................................................................................

(e) Tariffs

...............................................................................................................................................

Expert Solution
trending now

Trending now

This is a popular solution!

steps

Step by step

Solved in 3 steps

Blurred answer
Similar questions
  • SEE MORE QUESTIONS
Recommended textbooks for you
ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
Economics
ISBN:
9780190931919
Author:
NEWNAN
Publisher:
Oxford University Press
Principles of Economics (12th Edition)
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education