HONov17 - Economics 201, Witte, Thursday, November 17, 2005...

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Economics 201, Witte, Thursday, November 17, 2005 Final Quiz! o TA section: Krugman & Wells Chapter 19 vocabulary: appreciate, depreciate, and Figure 19-6 (p.472) o Aplia “Exchange Rates and the Macroeconomy II” Due Monday, Nov 19, 9:PM! I have more copies of Volume VI of Krugman and Wells. o Chapter 19 is found at www.worthpublishers.com/krugmanwells o Click on “Krugman/Wells Preview Site” o Click on “Sample Chapters” o Click on “Chapter 19” CUMULATIVE Final Exam: Thursday, December 8 th , 3:00-5:00. Bring Wildcard, calculator, and an 8.5 by 11 inch note-sheet on which you can put whatever notes you think will be helpful. The final will resemble the recent old midterms more than it will the old final exams I’ve posted. It’s worth 45% of your grade, but big improvements will be noted in this calculation. International Trade I. Comparative Advantage: David Ricardo’s Opportunity Cost example for trade. Resource Auto Parts/Day OR Brooms/Day US Worker 240 120 Mexican Worker 80 60 A.Absolute Advantage – More output for a given input. (Here, the US in both goods, but if Mexico could produce 300 auto parts per day, then the absolute advantages would be split between the two countries, and if Mexico could also make 200 brooms per day, then it would have both absolute advantages). B.Comparative Advantage – Lower opportunity cost of producing a good. i. Opportunity cost for US to make a broom: 2 auto parts ii. Opportunity cost for Mexico to make a broom: 1.33 auto parts iii. Opportunity cost for US to make an auto part: 0.5 brooms iv. Opportunity cost for Mexico to make an auto part: 0.75 brooms. v. US has a comparative advantage in auto parts and Mexico has a comparative advantage in brooms. C.Inefficient to fail to enjoy gains from specialization and trade. D.Given that nations follow their comparative advantages in trade: a. Effect on consumer surplus from increased world supply b. Effect on producer surplus from increased world demand c. Losses to producers (or consumers) balanced by gains to consumers (producers) E.Losers from trade? a. US workers? b. Foreign workers? c. Role of productivity and wages, and change in general. d. Trade agreements make is cheaper for us to import goods, which benefits our consumers (including poor ones), and makes it easier for foreigners to buy our goods, which is good for our exporters. Together, these effects can result in mutual gains from exchange in both countries. e. Why not make all of our own stuff and not trade with foreigners at all? NAFTA US- Mexico-Canada trade agreement passed ten years ago. Bush, Clinton, and Perot. The GWH Bush administration negotiated it. Perot campaigned against it with the claim that NAFTA would cause a “Giant sucking sound” of US jobs going down to
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Mexico. Clinton got NAFTA passed as a “creation of jobs” initiative. Employment did boom after the passing of NAFTA, but not because of NAFTA. Why not? f.
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HONov17 - Economics 201, Witte, Thursday, November 17, 2005...

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