Reference no: EM132364748
Assignment - Contemporary Global Issues, Trade, and Investment
TEXTBOOK: Daniels, J. P. and VanHoose, D. D. (2014). Global Economic Issues and Policies, 3rd edition. Routledge. ISBN: 978-0415710190.
DRAWING USE: SmoothDraw
Problem Set - Comparative Advantage, Tariffs, Quotas, Subsidies
1. Let's assume there are only 2 countries that produce 2 good. More specifically, suppose that the United States (US) and the United Kingdom (UK) each have 2 units of productive resources, 1 used to produce Wine, the other Cloth. The US can produce 40 units of Wine with 1 unit of productive resources and 40 units of Cloth with 1 unit of productive resources. The UK can produce 20 units of Wine with 1 unit of productive resources and 10 units of cloth with 1 unit of productive resources. Using this information, please answer the questions below:
Who has an absolute advantage in the production of Wine? Cloth?
Who has a comparative advantage in the production of Wine? Cloth?
Given specialization, what is production before trade? After trade?
What are the gains from trade?
What is the "range" of potential exchange rates between US and UK?
2. Suppose that in Japan, without a tariff 10,000 cars will be sold per year at an equilibrium price of $20,000. With a $5,000 tariff, supply decreases such that 8,000 cars are produced at $22,500 per car.
Use a supply and demand diagram to graphically illustrate the example above.
Why is the increase in price less than the tariff?
Who bears the burden of the tariff?
What are government revenues from the tariff?
What is the "dead-weight loss" associated with the tariff?
3. Graphically explain the negative effects of quotas. How about subsidies?
Chapter 4 - Regulating International trade-trade Policies and their Effects
QUESTIONS AND PROBLEMS -
1. Suppose that policymakers eliminate tariffs on imported pharmaceuticals. For a specific drug, the tariff originally was $0.60 per unit, and the domestic price with the tariff in place was $2.90. Now, under free trade, the domestic price is $2.50. With the, tariff, the domestic quantity demanded was 14 million units, and domestic quantity supplied was 6 million. Now, under free trade, the domestic quantity demanded 20 million, and the domestic quantity supplied is 4 million.
(a) Is the country in question a large country or a small country? Explain your answer.
(b) Illustrate this example in a supply-and-demand framework for the home country and the international market.
2. Using the diagram you constructed for question 1, answer the following questions.
(a) What is the value of the gain to the domestic consumers due to the removal of the tariff?
(b) What is the value of the loss to the domestic producers due to the removal of the tariff?
(c) What is the value of the loss of tariff revenue due to the removal of the tariff?
3. In questions 1 and 2, does the home country experience a net welfare gain or loss from the removal of the tariff?
4. Is the statement "A tariff on imports always leads to a reduction of domestic welfare" true, false, or uncertain? Explain your answer.
5. Consider the following situation for a nation in a small-country setting that has an import quota on men's shirts.
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With quota
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Free trade
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Price
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$45
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$30
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Quantity purchased
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1 million
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1.2 million
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Domestic quantity supplied
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400,000
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300,000
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Quota
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600,000
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None
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(a) Illustrate the effects of the quota in a supply-and-demand framework.
(b) Indicate in your diagram, and calculate:
(i) The loss of consumer surplus
(ii) The gain in domestic producer surplus
(iii) The deadweight losses
(iv) The quota rent.
6. Suppose that policymakers in the nation depicted in question 5 would like to switch from a quota to a tariff. What is the equivalent tariff rate for a specific tariff? For an ad valorem tariff? What benefits would there be to switching from a quota to a tariff?
7. Suppose that, to protect domestic producers from "unfair" competition, policymakers impose a countervailing duty on imported automobiles. Should domestic automakers receive the duty? Why, or why not?
8. Suppose that, under free trade, the global price of automobiles is $20,000. At this price, the quantity supplied in a small country, country 1, is 750,000. Producers in country 2 supply 500,000 autos to consumers in country 1, and producers in country 3 supply 2.25 million autos to consumers in country 1. Now suppose that policymakers, in country 1 and country 3 agree to a VER that restricts the quantity of automobiles exported from country 3 to country 1 to 1 million. Because of the VER, the price in country 1 rises to $25,000, the quantity supplied by producers in country 1 rises In 1.25 million, and the quantity supplied by producers in country 2 rises to 550,000.
(a) Diagram the situation described above in a supply-and-demand framework for country 1.
(b) Who benefits from the VER? Who is harmed?
9. Each year, consumers in a small country purchase 1 million pounds of sugar at the global price of $1.50 per pound. Domestic firms produce 500,000 pounds and domestic consumers import the remainder. Policymakers of the world's major supplier of sugar begin an export-subsidy program that rewards firms for exporting sugar. This program causes the global price of sugar to drop to $1 per pound. The domestic quantity demanded in the small country climbs to 1.3 million pounds, and the domestic quantity supplied falls to 300,000 pounds.
(a) Draw a diagram of the small-country market for sugar under free trade, and with the export subsidy in place.
(b) Calculate the loss of domestic producer surplus, and the increase in domestic consumer surplus..
(c) What is the total value of the subsidy in the small-country market?
(d) Can you identify any deadweight losses?
10. Based on the information in question 9, what is the ad valorem countervailing duty rate that would restore the domestic price in the small country to its free trade level? Who do you think is entitled to the revenue generated by the countervailing duty?
Chapter 5 - Regionalism and Multilateralism
QUESTIONS AND PROBLEMS
1. Consider the following data on flows of exports and imports among three nations, and suppose that the "world" is composed solely of these countries:
country A exports to country B: $35 million
country A exports to country C: $25 million
country B exports to country A: $30 million
country B exports to country C: $25 million
country C exports to country A: $20 million
country C exports to country B: $40 million
Calculate the following as a share of total world trade. Express your answers as percentage, and round to the nearest tenth of a percent.
(a) Country A's trade with country B
(b) Country A's trade with country C
(c) Country B's trade with country C.
2. Based on the information in question 1, which nation(s) has an overall trade deficit? Which has an overall trade surplus? Is world trade balanced?
3. Use the information in question 1 to calculate the following, and express your answers percentages rounded to the nearest tenth of a percent.
(d) Country A's total share of world trade
(h) Country B's total share of world trade
(c) Country C's total share of world trade
4. Suppose that country A and country B in question 1 together constitute a regional trade bloc known as the A-B Trade Area. Use your answers to questions 1 and 2 to calculate the trade concentration ratio of this regional trade bloc.
5. In principle, why is the trade concentration ratio you calculated in question 4 a better measure of the intensiveness of trade within the A-B Trade Area than simply the combined share of world trade of countries A and B? Give a verbal answer.
6. Suppose that a year passes, and the trade concentration ratio of the A-B Trade Area increases significantly. Does this observation necessarily imply that formation of the A-B Trade Area has enhanced overall world trade?
7. Another year passes, and the A-B Trade Area changes its name by inserting the word "Free" before "Trade Area." Under the agreement the two nations have reached, country A will remove all remaining restrictions on trade with country B this year. Both agree that another year will pass, however, before country B will reciprocate by from country A's perspective, how this year's action by country A is likely to generate both trade creation and trade diversion during the current year. Be sure to take into account country A's trade with country C as well.
8. It is now a year later, and country B removes all remaining restraints on trade with country A. Draw diagrams to show, from country B's perspective, how this action is likely to generate both trade creation and trade diversion during the current year Be sure to take into account country B's trade with country C as well.
9. One more year passes, and the A-B Free Trade Area negotiates a partial reduction in barriers to their trade with country C. Without drawing any additional diagrams, is this action more likely on net to generate trade creation or trade diversion? Explain your reasoning.
10. Suppose that all three nations agree to remove remaining barriers to trade among the entire set, so that the "world" becomes a free trade area. Country C is twice as far from both country A and country B as country A and country B are from each other. In addition, country A and country B are of equal size, but country C is half as large. Are trade flows likely to be unequal even with unhindered trade? If so, how?
Chapter 9 - Global Money and Banking - where Central Banks fir into the world economy
QUESTIONS AND PROBLEMS
1. In your view, what is the single most important role of a central bank? Could a central bank perform this role without performing its other roles?
2. Can a central bank directly "control" the size of the monetary base? Why, or why not?
3. Could a central bank conduct monetary policy solely by varying an interest rate on advances?
4. Under what circumstances does the quantity of money in circulation within a nation change when its central bank conducts foreign exchange interventions?
5. Suppose that a nation's central bank does not use open-market operations to conduct monetary policy. How could the central bank vary the interest rate(s) that it charges on its advances to try to sterilize a foreign exchange intervention intended to raise the value of its nation's currency?
6. True or false? Even though most central banks conduct foreign exchange interventions in the spot market, there is no reason that forward market interventions would not be equally effective. Take a stand, and support your answer.
7. Explain the difference between international policy cooperation and international policy coordination. Which do you believe is most common today?
8. Summarize the potential advantages of coordinating national economic policies. Of these, which do you think is most important? Explain.
9. Discuss the likely disadvantages of international policy coordination. Which do you believe to be the greatest disadvantage? Take a stand, and justify your position.
10. As noted in this chapter, there is not strong evidence that all the nations of Europe constitute an optimal currency area in the conventional sense. Yet many countries outside the EMU continue to express interest in joining it. Can you think of any other arguments that leaders of these nations might give to support their goal of becoming part of the EMU? Explain.
Attachment:- Assignment File.rar