Microeconomics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN: 9781305506893
Author: James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher: Cengage Learning
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Chapter 2, Problem 18CQ
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The Scenario :
Suppose that the market for good X is small in Malaysia and in Thailand , relative to the world market for good X . Both these markets are currently open to free trade . Suppose also that , relative to the rest of the world , Malaysia has a comparative advantage in producing good X whilst Thailand has a comparative disadvantage in producing good X. Malaysian consider good X a normal good , whereas Thais consider good X an inferior good .
The Question :
Using a set of appropriate diagrams ( with demand and supply curves ), show the comparison between the Malaysian and Thai markets for good X (side by side) - when an economic recession hits both Malaysia and Thailand simultaneously. Explain what happens to the price of good X in each country, as well as the quantity demanded, quantity supplied, and the quantity imported/exported. make sure that you include welfare tables and briefly explain the welfare effects on consumers, producers, and society as a whole - for each…
The model (graph) below represents a small country trade of good X after
the government decided to impose tariffs on import. Consider the case of
trade after tariffs. Please answer the following questions:
What area(s) represent the gain of surplus to producers?
What area(s) represent government revenue?
What area(s) represent the loss of surplus to consumers?
What area(s) represent consumers surplus?
What's the quantity imported?
Describe the impact of a tariff on social welfare. Refer to the graph to
support your answer.
A
Qs
Qs,t
QD₂t Q₂
Quantity
Edit View Insert Format Tools Table
Price
Pw+t
Pw
G
C
During the last 20 to 30 years, there have been a number of countries whose economies have experienced important economic expansion and development. One group of countries has been labeled the BRIC countries and the other the VISTA countries. Identify each of the nine countries and provide some insights about their economies and economic importance.
The theories of absolute and comparative advantage have been offered as an economic rationale for trade between and among regions and countries. Compare and contrast the two concepts. Which of the two do you think is more important for explaining the growth in global trade during the last 25 years? Why”
Chapter 2 Solutions
Microeconomics: Private and Public Choice (MindTap Course List)
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- While different natural resources and the theory of comparative advantage can explain many trade patterns, they cannot explain all types of trade that economists observe. Consider each scenario in the following table and determine which theory best explains the trade pattern described. Dynamic Comparative Advantage Product Life Cycle Theory Intra-Industry Specialization Scenario For many years, microchip firms in the nation of Tablon have struggled with high production costs compared to firms in the nation of Ghovia, because Tablon's soldering tools are outdated, forcing workers to work slowly. As a result, most microchips are made in Ghovia and exported. An inventor employed by a firm in Tablon comes up with a new way to solder chips that makes workers 40% more efficient. This innovation reduces costs and allows the firms in Tablon to take over the microchip market. In response, firms in Ghovia start to research how they can update their factories to be more cost effective. In the…arrow_forwardSuppose an economist develops an international trade model based on the assumption that there are only two countries and two goods. We can say that the model is worthless, since the actual world has many countries trading many goods. can be useful in the classroom, but has no use in the real world. can be useful only in situations involving two countries and two goods. can be useful in helping economists to understand the complex world of international trade involving many countries and many goods.arrow_forwardIn the "Krugman model" of New Trade Theory, increasing returns to scale and network effects play a significant role in international trade patterns. Suppose two countries are identical in every respect except for the fact that one country has a slightly larger initial market for a particular industry. According to the model, what is the likely long-term outcome for the industry? A) The industry will be evenly distributed between the two countries due to comparative advantage. B) The industry will eventually concentrate in the country with the larger initial market, leading to monopolistic competition and economies of scale. C) Both countries will experience identical growth rates in the industry due to constant returns to scale. D) The industry will disappear in both countries due to competitive pressures from other industries.arrow_forward
- Classify the statements as true or false by dragging them into the appropriate box. answer bank: (look at image for the answer bank) True Falsearrow_forwardIf a scale economy is the dominant technological factor defining or establishing comparative advantage, then the underlying facts explaining why a particular country dominates world markets in some product may be pure chance or historical accident. Using an example you have learnt in class, do you agree or disagree with the above statement? Explain the above phenomena in no more than 150 wordsarrow_forwardWhich situation describes when mutually beneficial trade occurs? Question options: Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Country A increases production of strawberries, and Country B decreases production of kiwis. When Country A trades with Country B to obtain kiwis, and when Country B trades with Country A to obtain strawberries, both countries can benefit. Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Neither country wants any of the produce they have a comparative advantage in, so both nations can benefit from trade. Country A has a comparative advantage in producing strawberries. Country B has a comparative advantage in producing kiwis. Country A increases production of strawberries, and Country B increases production of kiwis. When Country A trades with Country B to obtain…arrow_forward
- Analyzing the following (2x2) matrices. Identify the countries having certain advantages. Specify the benefits of trade for both countries. This matrix involves 2 countries exchanging 2 commodities Wheat (Labor hours/Unit of Output ) Steel (Labor hours/Unit of Output) Germany 30 40 France 20 80 (Numerical values reflect labor hours per unit of output) Will trade occur? Identify the country having the advantage in wheat production and the one having the advantage in steel production. Identify the production possibility frontiers for both countries. along with the gains from trade.arrow_forwardWe have export and import data of a country for the last two years. In addition, let's assume that we have the list of the most exported goods along with the countries that this country exports and imports to. How do we know if the trade pattern of this country is compatible with the comparative advantage theory? Also, what data do we need if we want to assess whether this country's trade pattern can be explained by the Hecksher-Ohlin theory?arrow_forwardAn examination of the Ricardian model of comparative advantage yields the clear result that trade is (potentially) beneficial for each of the two trading partners since it allows for an expanded consumption choice for each. However, for the world as a whole the expansion of production of one product must involve a decrease in the availability of the other, so that it is not clear that trade is better for the world as a whole as compared to an initial situation of non-trade (but efficient production in each country ?arrow_forward
- (g) Explain how is the production structure (i.e. which goods are produced) affected in each country by opening up to trade. Is this consistent with the empirical evidence we observe in reality? How can this model be modified to produce a less stark result?arrow_forwardWhich of the following best explains the concept of "Comparative Advantage" in international trade? a) A country should produce goods in which it has an absolute advantage and trade for those where it does not. b) A country should only export goods and import nothing to maintain a positive trade balance. c) A country should specialize in the production of goods for which it has the lowest opportunity cost compared to other countries. d) A country should diversify its production across various sectors to avoid dependence on a single export commodity.arrow_forwardHand written solutions are strictly prohibitedarrow_forward
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