Exam 9: Application International Trade: Part B

The nation of Loneland does not allow international trade.In Loneland,you can buy 1 pound of beef for 2 pounds of cheese.In neighboring countries,you can buy 2 pounds of beef for 3 pounds of cheese.If Loneland were to allow free trade,it would export cheese.

If Honduras were to subsidize the production of wool blankets and sell them in Sweden at artificially low prices,the Swedish economy would be worse off.

Suppose that Australia imposes a tariff on imported beef.If the increase in producer surplus is $100 million,the increase in tariff revenue is $200 million,and the reduction in consumer surplus is $500 million,the deadweight loss of the tariff is $300 million.

Without free trade,the domestic price of a good must be equal to the world price of a good.

We can conclude that international trade is beneficial because,regardless of whether the country imports or exports a good,the overall increase in well-being outweighs the losses associated with trade.

If we know that Canada exports maple syrup,we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

If a country allows free trade and imports cars,then it is the case that the gains to domestic producers outweigh the losses to domestic consumers.

"Trade raises the economic well-being of a nation in the sense that the gains of the winners exceed the losses of the losers." This statement is correct for a nation that exports manufactured goods,but it is not correct for a nation that imports manufactured goods.

Import quotas and tariffs make domestic sellers better off and domestic buyers worse off.

Free trade causes job losses in industries in which a country does not have a comparative advantage,but it also causes job gains in industries in which the country has a comparative advantage.

According to the principle of comparative advantage,all countries can benefit from trading with one another because trade allows each country to specialize in doing what it does best.

The small country assumption is made in developing models of international trade because it applies to US markets.

A tariff increases the quantity of imports and moves the market farther from its equilibrium without trade.

When markets open up to international trade,we know that total surplus will rise. ​

Suppose the Ivory Coast,a small country,imports wheat at the world price of $4 per bushel.If the Ivory Coast imposes a tariff of $1 per bushel on imported wheat,then,other things equal,the price of wheat in Ivory Coast will increase,but by less than $1.

Most economists view the United States as an ongoing experiment that raises serious doubts about the virtues of free trade.

Economists agree that trade ought to be restricted if free trade means that domestic jobs might be lost because of foreign competition.

Imposing a quota on the import of a good is preferable to a tariff because a tariff creates a deadweight loss while a quota does not.

For a given country,comparing the world price of aluminum and the domestic price of aluminum before trade indicates whether that country's demand for aluminum exceeds the demand for aluminum in other countries.

When a country allows international trade and becomes an importer of a good,domestic producers of the good are better off,and domestic consumers of the good are worse off.