Deck 18: Gaining From International Trade

Question 1

The European Union has virtually eliminated trade restrictions among its members, and most members now use a common currency. What impact have these changes had on European economies

Answer 1

These changes have exerted a profound impact on the European economies. Now, domestic producers in each European country, in absence of trade barriers, can treat whole of European Union as a domestic market.
This sheer size of market provides each producer to take advantage of economies of scale and in a sense; each country is able to benefit from its comparative advantage in immense manner.
This full realization of comparative advantage has enabled the each economy in European Union to expand their exports to the fullest.
This has contributed towards rising income and employment in these economies.
This kind of arrangement has come as a boon for Eastern European countries that are now part of European Union.
These countries are relatively poor in comparison to many other European Union members such as Germany, France, and Italy etc.
Free trade, as part of European Union, has enabled these countries to increase their export to rich members of EU and thus increase their income levels and create substantial employment opportunities for their people.
Secondly, usage of single currency also eliminates the impact of exchange rate fluctuations on the competitiveness of producers within European Union.
This also shield them from exchange rate risk as well and thus save substantial resources which they can utilize for production activities instead of finding ways to minimize exchange rate losses.

Question 2

Does international trade cost Americans jobs Does interstate trade cost your state jobs What is the major effect of international and interstate trade

Answer 2

Trade is one of the most important sources of growth. Trade helps the economy to specialize in what they produce more efficiently and allow them to sell it to the customers who valued them most. This ensures lower cost of production and higher profit margins. Trade also enables the economy to consume beyond its productive capacity. Hence, trade increases country's income and ensures faster growth.
Trade increases the income of the residents of a country and accelerates the growth rate. The country can benefits from trade by:
• Specializing in the production of low cost good and exchange them for a good that has higher production cost domestically. This allows the country to allocate their resources in more productive industry and achieve production efficiency.
• Allowing the consumer to get higher amount different products in lower cost that would not have been possible without trade. Then, trade permit consumption efficiency by increasing consumer surplus.
• Allowing the country to consume at a point beyond PPF, this means the consumer welfare and income of the country increases.
• Providing the foreigner the purchasing power needed to consume domestic goods.
If the Americans buy from America and places high tariff to restrict trade with foreigners, the domestic consumer will pay the higher price than the world price that would have been with trade. This represents loss to the consumers. Then, the absence of trade will make the Americans worse off. On the other hand, the absence of trade will also reduce the foreign demand for domestic good. This will prompt the domestic producers to cut back some of its production and profit will fall. This will also prompt the producers' to lay off some workers and employment in America will fall.
For all the reason stated above the trade restriction with any country will harm the Americans themselves. Therefore, no matter what the reason might for the lower price of a foreign good, one must not apply trade protection. It will harm the people of the country eventually and will retard economic growth.
The major effects of international and interstate trade is it allows the country to specialize in the production of a good that is produce at a lower cost domestically and then trade it for the good which are not produced economically. Trade ensures the efficient allocation of resources and increases the return from inputs. Trade provides the foreigner with the purchasing power needed to purchase domestic goods and export increases. Thus, trade increases the income of the economy and growth rate accelerates improving the living standard.

Question 3

"The United States is suffering from an excess of imports. Cheap foreign products are driving American firms out of business and leaving the U.S. economy in shambles." Evaluate this view.

Answer 3

Trade is one of the most important sources of growth. Trade helps the economy to specialize in what they produce more efficiently and allow them to sell it to the customers who valued them most. This ensures lower cost of production and higher profit margins. Trade also enables the economy to consume beyond its productive capacity. Hence, trade increases country's income and ensures faster growth.
Trade increases the income of the residents of a country and accelerates the growth rate. The country can benefits from trade by:
• Specializing in the production of low cost good and exchange them for a good that has higher production cost domestically. This allows the country to allocate their resources in more productive industry and achieve production efficiency.
• Allowing the consumer to get higher amount different products in lower cost that would not have been possible without trade. Then, trade permit consumption efficiency by increasing consumer surplus.
• Allowing the country to consume at a point beyond PPF, this means the consumer welfare and income of the country increases.
• Providing the foreigner the purchasing power needed to consume domestic goods.
If the Americans buy from America and places high tariff to restrict trade with foreigners, the domestic consumer will pay the higher price than the world price that would have been with trade. This represents loss to the consumers. Then, the absence of trade will make the Americans worse off. On the other hand, the absence of trade will also reduce the foreign demand for domestic good. This will prompt the domestic producers to cut back some of its production and profit will fall. This will also prompt the producers' to lay off some workers and employment in America will fall.
For all the reason stated above the trade restriction with any country will harm the Americans themselves. Therefore, no matter what the volume of the import may be, one must not apply trade protection. The volume of import ensures the increase in the business in export competing sector. Trade provides the foreigner with the purchasing power needed to purchase domestic goods and export increases. Thus, trade increases the income of the economy and growth rate accelerates improving the living standard.

Question 4

The United States uses an import quota to maintain the domestic price of sugar well above the world price. Analyze the impact of the quota. Use supply and demand analysis to illustrate your answer. To whom do the gains and losses of this policy accrue How does the quota affect the efficiency of resource allocation in the United States Why do you think Congress is supportive of this policy

Question 5

S. trade with low-wage countries like Mexico increases, will wages in the United States be pushed down Why or why not Are low-wage workers in the United States hurt when there is more trade with Mexico Discuss.

Question 6

"Tariffs not only reduce the volume of imports, they also reduce the volume of exports." Is this statement true or false Explain your answer.

Question 7

Why do American households and businesses buy things from foreigners What are the characteristics of the items we buy from foreigners What are the characteristics of the things we sell to foreigners

Question 8

"Physical obstacles like bad roads and stormy weather increase transaction costs and thereby reduce the volume of trade. Tariffs, quotas, exchange rate controls, and other human-made trade restrictions have similar effects." Evaluate this statement. Is it true Why or why not

Question 9

"Trade restrictions limiting the sale of cheap foreign goods in the United States are necessary to protect the prosperity of Americans." Evaluate this statement made by an American political leader.

Question 10

Suppose as the result of the Civil War that the United States had been divided into two countries and that, through the years, high trade barriers had grown up between the two. How might the standard of living in the "divided" United States have been affected Explain.

Question 11

Can both of the following statements be true Why or why not
a. "Tariffs and import quotas promote economic inefficiency and reduce the real income of a nation. Economic analysis suggests that nations can gain by eliminating trade restrictions."
b. "Economic analysis suggests that there is good reason to expect that trade restrictions will exist in the real world."

Question 12

"Imports destroy jobs; exports create them. The average American is hurt by imports and helped by exports." Do you agree or disagree with this statement Explain.

Question 13

"An increased scarcity of a product benefits producers and harms consumers. In effect, tariffs and other trade restrictions increase the domestic scarcity of products by reducing the supply from abroad. Such policies benefit domestic producers of the restricted product at the expense of domestic consumers." Evaluate this statement.

Question 14

Suppose that a very high tariffwas placed on steel imported into the United States. How would that affect employment in the U.S. auto industry ( Hint: Think about how higher steel prices will impact the cost of producing automobiles.)

Question 15

"Getting more Americans to realize that it pays to make things in the United States is the heart of the competitiveness issue." (This is a quote from an American business magazine.)
a. Would Americans be better offif more of them paid higher prices in order to "buy American" rather than purchase from foreigners Would U.S. employment be higher Explain.
b. Would Californians be better offif they bought goods produced only in California Would the employment in California be higher Explain.

Question 16

How do tariffs and quotas differ Can you think of any reason why foreign producers might prefer a quota rather than a tariff Explain your answer.

Question 17

It is often alleged that Japanese producers receive subsidies from their government permitting them to sell their products at a low price in the U.S. market.
Do you think we should erect trade barriers to keep out cheap Japanese goods if the source of their low price is a government subsidy Why or why not