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ECON 333 – SPRING 2008 HOMEWORK ASSIGNMENT 1 For questions 2, 3, 4 and 6, consider a world with two goods: Chemicals and Textiles. Put Chemicals on the horizontal axis in your figures. 1. Trade Partners (12 points) Go to WTO International Trade Statistics, 2007 . Based on pages 17 and 18 answer the following questions for 2006: a) What are the major differences between the EU trade partners and the US trade partners? (List at least five.) Look both at the regional and at the economy level EU trade partners are mostly concentrated within the European Union. In 2006, 67% of total exports are within the EU region, compared with 7.3 % go into the USA, 2% go into Russian and only 1% go into China. Similar trend can be found in imports where 64.2% of total imports are from the European Union. Major trading partners are Turkey, Japan, Norway, Romania and Canada. For the USA, we see that most trade occurs with Canada, EU and Mexico. In 2006, 22.2% of total exports go into Canada, 20.7% go into EU and 12.9% go into Mexico, while only 5.8% of exports go into Japan and 5.3% go into China. For imports, EU and Canada remain major partners. China plays an important role in imports market where 15.9% of total imports are from China. Major trading partners are Canada, Mexico, China, Korea, and India. b) What could explain the differences you noted in a)? For EU, the economic union and other trading agreements encourage and protect inter- region trade. Similarly in the USA, North American Free Trade Agreement encourages US to trade with Canada and Mexico. Developed countries tend to trade with similarly developed countries where the business environment is more hospitable. For example, developed countries tend to have better contract enforcement institutions or better infrastructures for trade. Advanced and developed business environment is one of the important reasons why trade occurs mostly within the developed world.
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2. Relative Prices (16 points) a) Draw the price line for the following nominal prices and income levels: Price of Chemicals is $450, price of Textiles is $225, and the income level is $90,000.
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This note was uploaded on 09/22/2008 for the course ECON 333 taught by Professor Yavas,cemilepan,lu during the Fall '06 term at Pennsylvania State University, University Park.

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