ECON101 Chapter Notes -Comparative Advantage, Deadweight Loss, Infant Industry Argument

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tanpig583

23 Feb 2014

School

University of Alberta

Department

Economics

Course

ECON101

Professor

Alexander Gainer

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ECON101 Full Course Notes

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A country has a comparative advantage in a good if the country"s opportunity cost of the good is less than the other countries. If the domestic price of the good is less than the world price: it has a comparative advantage in the good, under free trade, it will export the good. If the world price of the good is less than the domestic price: country does not have a comparative advantage, under free trade, the country imports the good. A small economy is a price taker on the market. It can"t affect the price of the good. When a small company engages in free trade, the world price is the only relevant price. No seller will accept a price that is less than the world price. No buyer will pay more than the world price. The winners from trade could compensate the losers but such compensation rarely happens.

Related Questions

Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.

A. Which of the following statements is true?

a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges

b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges

c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges

d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges

B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?

a. $3

b. $4

c. $3.5

C. After opening up to trade, the level of exports/imports for the country will be:

a. 8,000 lbs.

b. 12,000 lbs.

c. 10,000 lbs.

d. 4,000 lbs.

D. How much (in $) is the net gain from trade for this country in opening up to free trade?

coralbadger702

1. An import tariff

a. lowers the domestic price of the exported good below the world price.

b. keeps the domestic price of the exported goods the same as the world price.

c. raises the domestic price of the imported good above the world price

d. lowers the domestic price of the imported good below the world price.

2. Which two accounts are included in the balance of payments:

a. current account and the reserve account.

b. current account and the trade account.

c. current account and the capital account.

d. trade account and the capital account.

3. A producer has a comparative advantage in the production of a good when the producer:

a. has a production cost that is less than sales revenue.

b. has the highest cost of production compared to any other producer.

c. is comparatively more efficient at producing the good than it is at producing anything else.

d. specializes through the use of an assembly line.

4. According to the Fischer effect, if the "real" rate of interest in a country is 4 percent and expected annual inflation is 9 percent, the "nominal" interest rate will be _____.

5 percent

B.	13 percent

9 percent

36 percent

bluetortoise611

If the world price of a beverage produced from distilled potatoes is higher than Russiaâs domestic price under autarky, then under free trade Russia:

a. Should import this beverage.

b. Has a comparative advantage in the production of this beverage.

c. Should only produce enough of this beverage to meet its domestic demand.

d. Will experience a loss in producer surplus

ECON101 Chapter Notes -Comparative Advantage, Deadweight Loss, Infant Industry Argument

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