Question & Answer

In this model, where the country is a price taker and faces a horizontal supply curve (the small country assumption), is any of the cost of the tariff borne by the overseas suppliers?

If economics is the study of choices of how to use scarce resources, can these other objectives be legitimately described as ‘non-economic’?

1. How much would be the total tax revenue for the government?

2. Will the individual producers gain from the export tax?

In what ways may free trade have harmful cultural effects on developing countries?

Does the consumer in the importing country gain or lose from dumping?

How would you set about judging whether an industry had a genuine case for infant/senile industry protection?

Would it be possible for a country with a comparative disadvantage in a given product at pre-trade levels of output to obtain a comparative advantage in it by specialising in its production and exporting it?

1. Draw a similar diagram to Figure 24.9, only this time assume that the two goods are good a measured on the vertical axis and good b measured on the horizontal axis. Assume that the country has a comparative advantage in good a. (Note that the world price ratio this time will be shallower than the domestic pre-trade price ratio.) Mark the level of exports of a and imports of b.

2. Is it possible to gain from trade if competition is not perfect?

1. If production were at point a in Figure 24.8, describe the process whereby equilibrium at point P₁C₁ would be restored under perfect competition.

2. Why would production be unlikely to take place at P₁C₁ if competition were not perfect?

Why will exporters probably welcome a ‘deterioration’ in the terms of trade?

Draw a similar diagram to Figure 24.7 showing how the price of an individual good imported into country A is determined.

In Figure 24.6, which countries’ terms of trade improved in the 2000s?

1. If 4x exchange for 3m what are the terms of trade?

2. If the terms of trade are 3, how many units of the imported good could I buy for the money earned by the sale of 1 unit of the exported good? What is the exchange ratio?

1. Draw a diagram with the same two countries and with the same production possibilities and exchange ratio as in Figure 24.5. But this time show how much would be imported and exported for each country if, after trade, the LDC consumes 500 million kilos of wheat. Fill the figures in on a table like Table 24.5.

2. If the opportunity cost ratio of wheat for cloth is 1/2 in the LDC, why is the slope of the production possibility curve 2/1? Is the slope of the production possibility curve always the reciprocal of the opportunity cost ratio?

3. Show (graphically) that, if the (pre-trade) opportunity cost ratios of the two countries were the same, there would be no gain from trade – assuming that the production possibility curves were straight lines and did not shift as a result of trade.

1. Show how each country could gain from trade if the LDC could produce (before trade) 3 wheat for 1 cloth and the developed country could produce (before trade) 2 wheat for 5 cloth, and if the exchange ratio (with trade) was 1 wheat for 2 cloth. Would they both still gain if the exchange ratio was (a) 1 wheat for 1 cloth; (b) 1 wheat for 3 cloth?

2. In question 1, which country gained the most from a trade exchange ratio of 1 wheat for 2 cloth?

Draw up a similar table to Table 24.3, only this time assume that the figures are: LDC 6 wheat or 2 cloth; DC 8 wheat or 20 cloth. What are the opportunity cost ratios now?

Why does the USA not specialise as much as General Motors or Texaco? Why does the UK not specialise as much as Tesco? Is the answer to these questions similar to the answer to the questions, ‘Why does the USA not specialise as much as Luxembourg?’, and ‘Why does Tesco or Unilever not specialise as much as the local butcher?’

If the volume of merchandise exports falls by less than their value what can be infer about what has happened to the prices of merchandise exports’?

Which countries’ merchandise trade had fallen as a percentage of GDP between the 2000s and the 2010s? Explain why.

How might clustering effects be incorporated into endogenous growth theories?

What are the advantages and disadvantages of local collaborations, such as LEPs, as compared to geographically larger collaboration?

How would the radical right reply to these arguments?

Would a cut in benefits affect the W_o curve? If so, with what effect?

Is the number of working days lost through disputes a good indication of (a) union power; (b) union militancy?

Does this mean, therefore, that there were no positive incentive effects from the 1979–97 Conservative government’s tax measures?