· Using the data provided in the table below, please draw the production possibilities schedules for each country. Assume constant returns. Please answer all of the following questions:
1. Which country has the absolute advantage in Steel? In VCRs?
2. Which country has the comparative advantage in Steel? In VCRs?
3. What is the opportunity cost of one VCR in Japan? In South Korea?
4. With international trade, what would be the maximum amount of Steel that South Korea would be willing to export to Japan in exchange for each VCR?
5. With international trade, what would be the maximum number of VCRs that Japan would be willing to export to South Korea in exchange for each ton of steel?
6. Explain why constant returns might not hold up in the real world?
Q2
Using the data provided in the graph below, please answer all of the following questions:
Import Tariff Levied by a Small Country
- In the absence of trade, how many calculators does Mexico produce and consume?
- In the absence of trade, how much is Consumer Surplus in Mexico? How much is Producer Surplus?
- With free trade, how many calculators does Mexico import?
- With a per unit tariff of $3, what is the quantity of imports?
- What is the loss in consumer surplus due to the tariff?
- As a result of the tariff, what is the Revenue effect? Redistribution effect? Deadweight loss?
- Why does the overall welfare of a small country decline as the result of a tariff?
Q3
Please answer the following essay question. Your answers should address all parts of the question asked.
Describe the four types of regional trading agreements discussed in class and show how each type creates a greater and greater level of economic integration. Using the European Union as your example, describe the challenges associated with the various stages of economic integration. Contrast the EU with NAFTA and provide your rationale for why NAFTA has not, to date, reached the same level of economic integration as has occurred in Europe.
Q4
Strategic Trade Policies have been successfully used by governments to alter the terms of competition in favor of their domestic companies. Using the game theoretic framework (payoff matrix) provided below, please answer all of the following questions:
- In the case of no subsidy, does either firm have a dominant strategy to produce aircraft? Explain why or why not. In this case, which firm is likely to get the deal? Why?
- Assume the European governments decide to subsidize Airbus production by $20 million as illustrated in the second payoff matrix. How is the outcome changed? Specifically, what will Airbus choose to do? What will Boeing choose to do?
- Provide a critique of Strategic Trade Policy. Be sure to cite and explain at least three problems that can arise with pursuing such a policy.
Q5
· Please answer the following essay question. Your answers should address all parts of the question asked.
Explain the difference between absolute advantage and comparative advantage. Why is international trade theory based on the latter? Be sure to contrast trade theory with the earlier Mercantilist period. What was the shortcoming in Ricardo’s early trade theory and how did John Stuart Mill resolve this problem?
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Q6
· Please answer the following essay question. Your answers should address all parts of the question asked.
Explain the difference between import substitution and export promotion as economic growth strategies for developing countries. Be sure to include in your response both the strengths (benefits) and weaknesses (risks) inherent in both strategies. Which strategy has China pursued in recent years? Is this strategy sustainable in the long run? Why/why not?
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Q7
· Please answer the following essay question. Your answers should address all parts of the question asked.
Technology is viewed by economists as a source of comparative advantage but technological advantage is often transitory. Use the Product Life Cycle (PLC) Theory to explain the role of technological innovation as a key determinant of the trade patterns in manufactured goods. Use a diagram to illustrate your explanation. What are the implications of the PLC Theory for an innovating country like the United States?
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Q8
· Using the data provided in the graph below, please answer all of the following questions:
1. In the absence of dumping (without price discrimination), how much profit does ABC Co. earn?
2. With dumping (price discrimination), how many calculators will ABC Co. sell to Canada? To France? What price can ABC CO. charge the Canadians? The French? What are total profits now?
3. Does ABC Co. benefit from dumping (price discrimination)? Explain why this is.
4. In the real world, why might price discrimination be difficult to achieve? What are the unintended consequences?
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