ECO 471 Solutions Assignment 4

ECO 471 Solutions Assignment 4 - cars that have a...

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ASSIGNMENT 4 ECO471: SPRING 2008 Krugman and Obtsfeld p. 197 5 Krugman and Obtsfeld p. 238-239 5, 9 5) The effective rate of protection would be (200 X 1.50 – 200)/100 =100% 5) (a) Trade Diversion because it would make the cost of Japanese cars being lower with its import value of €15,000 with a real cost of €10,000 would then be replaced by the Polish cars that have a production cost €14,000. (b) Trade Creation because the German cars cost €20,000 to produce and the Polish cars only cost €14,000. (c) Trade Diversion because it would make the cost of Japanese cars being lower with its import value of €16,000 with a real cost of €8,000 would then be replaced by the Polish
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Unformatted text preview: cars that have a production cost 14,000. 9) They really are not that justified. Large countries can affect world prices of any good in another country and cause a reduction in employment, in a particular export industry. Policies could be developed to address more specific and direct policy instruments. These could include all sorts of fines for harsh labor or pollution also these policies could reduce production of the good overseas. Workers need to look at their working conditions in home country because they may be less cruel then their export industry....
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