EC120 Chapter Notes - Chapter 9: World Trade Organization, Market Power, Opportunity Cost

24 views6 pages

greenseal220

6 Sep 2016

School

Department

Course

Professor

For unlimited access to Textbook Notes, a Class+ subscription is required.

carminegrasshopper545 and 38337 others unlocked

EC120 Full Course Notes

Verified Note

30 documents

Document Summary

Recall from chapter 3: a country has a comparative advantage in a good if it produces the good at lower opportunity cost than other countries. Countries can gain from trade if each exports the goods in which it has a comparative advantage. The price that prevails in world markets. The country has a comparative advantage in the good. Under free trade, the country exports the good. The country does not have a comparative advantage. Under free trade, the country imports the good. Its actions have no effect on pw. Canada suits the de nition of a small economy: when a small economy engages in free trade, pw is the only relevant price. No seller would accept less than pw, since they could sell the good for pw in world markets. No buyer would pay more than pw, since they could buy the good for pw in world markets.

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

Mention if the following statements are true or false. Explain clearly why, using ideas and concepts.

a. Under free trade, one country gains at the expense of the other.

b. The theory of comparative advantage states that free trade benefits all countries.

c. The Neo-classical trade theory states that trade arises due to different amounts of labor and capital in a country.

d. The H-O theory states that trade arises due to different PPFs in a country.

e. Under free trade, prices fall, so trade becomes easier.

f. A country should not have any imports and should increase exports if it wants to increase its employment levels.

g. Adam Smith recommended very strong government regulation of trade.

h. A country with higher labor productivity than another country will have a comparative advantage in the production of all goods.

i. The Theory of absolute advantage explains producer and consumer equilibriums under free trade.

j. Developed countries do not gain under free trade with developing countries.

skywasp336

215. Economists examine pollution from the perspective of the:
A) preferences of people.
B) intensity and duration of the harm to resources.
C) desires of government bureaucrats.
D) intent of business firms in the maximization of profits.

212. Free trade is beneficial because it:
A) reduces competition.
B) leads to less use of the world's resources.
C) results in a wider array of consumer products.
D) leads to the production of free goods.

206. If a country has a comparative advantage in the production of a good:
A) it can produce that good at a lower opportunity cost.
B) it will find trade most beneficial when it trades with another country that has a comparative advantage in the same good.
C) it will not find trade beneficial because other countries won't have a comparative advantage in other goods.
D) it must also have an absolute advantage in the good.

203. Which of the following statements is true?
A) Nations have generally moved toward freer international trade policies over the past few decades.
B) Nations all over the world have recently raised trade barriers.
C) Eastern Europe and the Former Soviet Union countries have reduced trade in the last decade.
D) NAFTA lowered trade barriers between the United States and Mexico but raised them between the United States and Canada.

olivebuffalo87

EC120 Chapter Notes - Chapter 9: World Trade Organization, Market Power, Opportunity Cost

EC120 Full Course Notes

Document Summary

Get access

Related Documents

EC120 Lecture Notes - Lecture 19: Deadweight Loss, Demand Curve, Comparative Advantage

EC120 Chapter Notes - Chapter 9: Market Power, Comparative Advantage, Opportunity Cost

EC120 Study Guide - Midterm Guide: Laffer Curve, Deadweight Loss, Economic Surplus

Related Questions