7608e0f10de66d5ccdf33929c42a6b1e

7608e0f10de66d5ccdf33929c42a6b1e - Final 1 Final Chapter 17...

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Final 1 Final Chapter 17 A. International trade (take two) 1. Questions to answer a. If “workers in the United States are the most productive in the world,” why do we consume so many imported goods? b. If “trade can make everyone better off,” why is there so much opposition to it? c. The country may be better off but individual results will vary. Some people will lose to trade. d. Comparative advantage- producing at the lowest opportunity cost. 2. England and Portugal revisited Output per Worker per Hour Wine Cloth England 5 liters 15 sq. m Portugal 4 liters 8 sq. m Opportunity Cost per Unit of: Wine Cloth England 3 cloth 1/3 wine Portugal 2 cloth 1/2 wine Autarky: Production=Consumption Wine Cloth England 200 liters 900 sq. m Portugal 200 liters 400 sq. m Production with Trade Wine Cloth England 0 liters 1500 sq. m Portugal 400 liters 0 sq. m
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P P* Autarky P* WORLD A Q* DOMESTIC Q* AUTARKY Q* TRADE English Wine Industry CS PS Imports D DOMESTIC S WORLD Area B Gains from trade. CS with trade S DOMESTIC Area A Final 2 Consumption with Trade Wine Cloth England 200 liters 1000 sq. m Portugal 200 liters 500 sq. m a. Winners from trade are producers in export and consumers that consume the good that were being imported. b. We import so much because we increase suppliers which lowers price. c. Losers are import competition industries. d. Consumers consuming the good being exported are worse off. B. Supply and demand in an open economy 1. Importer a. P* AUT, Q* AUT : If there is no trade (Autarky) b. Total Economic Surplus = CS + PS c. England opens to trade. The supply curve will go up until it reaches P* WORLD and then will be perfectly elastic. d. P* will go down when England opens to trade. Q* will go up. e. Producer A will continue to sell his English wine because he is willing and able to sell it. It is below his reservation price. f. Consumer Surplus increases g. Q* DOMESTIC : how much English producers will produce. h. Area between Q* TRADE and Q* DOMESTIC is the amount of import. i. English producer surplus has gone down. j.
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7608e0f10de66d5ccdf33929c42a6b1e - Final 1 Final Chapter 17...

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