Now add Foreign, which has a demand curve D* = 80 - 20P and a supply curve S* = 40 + 20P. a. Derive and graph Foreign’s export supply curve and find the price of wheat that would prevail in Foreign in the absence of trade. b. Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade?
> If taxpayers are not allowed to claim deductions for dependency exemptions, is it necessary to determine who qualifies as a taxpayer’s dependents? Briefly explain.
> Heather paid $15,000 to join a country club in order to meet potential clients. This year she paid $4,300 in greens fees when golfing with clients and an additional $5,700 paid when Heather held business meetings with clients in the clubhouse conference
> Ralph operates a business that acts as a sales representative for a large firm that produces and sells precious metals to electronic manufacturers. Ralph contacts manufacturers and convinces them to sign contracts for delivery of metals. Ralph earns a co
> Indicate the amount (if any) that Josh can deduct as an ordinary and necessary business deduction in each of the following situations and explain your solution. a) Josh borrowed $50,000 from the First State Bank using his business assets as collateral.
> For the following taxpayers determine if they are required to file a tax return in 2018. a. Ricko, single taxpayer, with gross income of $15,000. b. Fantasia, head of household, with gross income of $17,500. c. Ken and Barbie, married taxpayers with no
> In 2018, Amanda and Jaxon Stuart have a daughter who is one year old. The Stuarts are full-time students and they are both 23 years old. Their only sources of income are gains from stock they held for three years before selling and wages from part-time j
> In 2018, Laureen is currently single. She paid $2,800 of qualified tuition and related expenses for each of her twin daughters Sheri and Meri to attend State University as freshmen ($2,800 each for a total of $5,600). Sheri and Meri qualify as Laureen’s
> In 2018, Elaine paid $2,800 of tuition and $600 for books for her dependent son to attend State University this past fall as a freshman. Elaine files a joint return with her husband. What is the maximum American opportunity credit Elaine can claim for th
> Julie paid a day care center to watch her two-year-old son this year while she worked as a computer programmer for a local start-up company. What amount of child and dependent care credit can Julie claim in each of the following alternative scenarios? a.
> Trey has two dependents, his two daughters, ages 14 and 17, at year-end. Trey files a joint return with his wife. What amount of child credit will Trey be able to claim for his daughters in each of the following alternative situations? a. His AGI is $100
> Eva received $60,000 in compensation payments from JAZZ Corp. during 2018. Eva incurred $5,000 in business expenses relating to her work for JAZZ, Corp. JAZZ did not reimburse Eva for any of these expenses. Eva is single and she deducts a standard deduct
> Why are some deductions called “above the line” deductions and others called “below the line” deductions? What is the “line”?
> Are taxpayers required to include all realized income in gross income? Explain.
> Assume Norway and Sweden trade with each other, with Norway exporting fish to Sweden, and Sweden exporting Volvos (automobiles) to Norway. Illustrate the gains from trade between the two countries using the standard trade model, assuming first that taste
> The Internet has allowed for increased trade in services such as programming and technical support, a development that has lowered the prices of such services relative to those of manufactured goods. India in particular has been recently viewed as an “ex
> Suppose that Home has 2,400 workers, but they are only half as productive in both industries as we have been assuming. Construct the world relative supply curve and determine the equilibrium relative price. How do the gains from trade compare with those
> Our usual models of trade assume that jobs lost in one industry will be offset by jobs gained in other industries. The Autor et al. paper argued, however, that communities that lose manufacturing jobs to imports end up losing other jobs as well. Is this
> Many countries have value-added taxes—taxes that are paid by producers, but are intended to fall on consumers. (They’re basically just an indirect way of imposing sales taxes.) Such value-added taxes are always accompanied by an equal tax on imports; suc
> Modern communications technology is making it possible to perform many services—e.g., reading X-rays or even doing legal research—from remote locations. How does this affect the potential gains from trade?
> France, in addition to its occasional stabs at strategic trade policy, pursues an active nationalist cultural policy that promotes French art, music, fashion, cuisine, and so on. This may be primarily a matter of attempting to preserve a national identit
> What is the main critique against the WTO with respect to environmental protection? How does the WTO justify its position on trade disputes that involve environmental issues?
> Some retailers in advanced countries sell products from developing countries with low wages but assure customers that these goods are produced under tolerable working conditions. Is demanding that kind of guarantee the same thing as putting a tariff on l
> What are the key assumptions that allow strategic trade policy to work in the Brander-Spencer example of Airbus and Boeing?
> If the United States had its way, it would demand that Japan spend more money on basic research in science and less on applied research into industrial applications. Explain why in terms of the analysis of appropriability.
> It’s widely believed that self-driving vehicles will become commonplace in the fairly new future and that their growth will be fast for years to come. Doesn’t this mean that the United States should have policies designed to ensure that we are a leader i
> What are the disadvantages of engaging in strategic trade policy even in cases in which it can be shown to yield an increase in a country’s welfare?
> What were some of the reasons for the decline in the import-substituting industrialization strategy in favor of a strategy that promotes open trade?
> Brazil and Mexico have both liberalized trade since the 1980s. However, Mexican trade liberalization has gone much further; Brazil is still a fairly inward-looking economy. What might account for this difference in paths?
> A country currently imports automobiles at $8,000 each. Its government believes that, given time, domestic producers could manufacture autos for only $6,000 but that there would be an initial shakedown period during which autos would cost $10,000 to prod
> The overall cost of living is a lot less in China than it is in the United States or Europe. Why might this be? (Think about your answer to problem 7.) Data from Problem 7: Despite major gains, Chinese manufacturing workers have much lower productivity
> Look back at Figure 10-5, specifically at the left part of the figure. How does the historical trade policy of the United States compare with that of developing countries in the 20th century? Why do you think the results seem to have been so different?
> Which countries appear to have benefited the most from international trade during the last few decades? What policies do these countries seem to have in common? Does their experience lend support for the infant industry argument or help to argue against
> The United States has taken action to restrict imports of certain Chinese goods, such as toys containing lead and seafood that doesn’t meet health standards, in order to protect U.S. consumers. Some people have said this shows a double standard: If we’re
> If governments make trade policies based on national economic welfare, is the problem of trade warfare still represented by a Prisoner’s dilemma game as in Table 10-3? What is the equilibrium solution to the game if governments formulat
> Give an intuitive explanation for the optimal tariff argument.
> There is no point in the United States complaining about trade policies in Japan and Europe. Each country has a right to do whatever is in its own best interest. Instead of complaining about foreign trade policies, the United States should let other coun
> Upon Poland’s entering the European Union, suppose it is discovered that the cost of automobile production in Poland is €20,000 while it is €30,000 in Germany. Suppose the EU, which has a customs union,
> Suppose demand and supply are exactly as described in problem 3, but there is no marginal social benefit to production. However, for political reasons the government counts a dollar’s worth of gain to producers as being worth $3 of either consumer gain o
> A small country can import a good at a world price of 10 per unit. The domestic supply curve of the good is S = 20 + 10P. The demand curve is D = 400 - 5P. In addition, each unit of production yields a marginal social benefit of 10. a. Calculate the t
> Which of the following are potentially valid arguments for tariffs or export subsidies, and which are not? Explain your answers. a. “The more oil the United States imports, the higher the price of oil will go in the next world shortage.” b. “The growing
> Despite major gains, Chinese manufacturing workers have much lower productivity than their U.S. counterparts. Chinese service workers are relatively more productive, but most services aren’t tradable. So which matters for Chinese wages—smanufacturing or
> For a small country like the Philippines, a move to free trade would have huge advantages. It would let consumers and producers make their choices based on the real costs of goods, not artificial prices determined by government policy; it would allow esc
> The nation of Acirema is “small” and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve is D = 400 - 10P. The supply curve is S = 50 + 5P. Determine the free trade equilibrium. Then calculate and graph the
> Use your knowledge about trade policy to evaluate each of the following statements: a. “An excellent way to reduce unemployment is to enact tariffs on imported goods.” b. “Tariffs have a more negative effect on welfare in large countries than in small co
> Return to the example of problem 2. Starting from free trade, assume that Foreign offers exporters a subsidy of 0.5 per unit. Calculate the effects on the price in each country and on welfare, both of individual groups and of the economy as a whole, in b
> The United States simultaneously limits imports of ethanol for fuel purposes and provides incentives for the use of ethanol in gasoline, which raise the price of ethanol by about 15 percent relative to what it would be otherwise. We do, however, have fre
> What would be the effective rate of protection on bicycles in China if China places a 50 percent tariff on bicycles, which have a world price of $200, and no tariff on bike components, which together have a world price of $100?
> Suppose Foreign had been a much larger country, with domestic demand D* = 800 - 200P, S* = 400 + 200P. (Notice that this implies the Foreign price of wheat in the absence of trade would have been the same as in problem 2.) Recalculate the free trade eq
> Home imposes a specific tariff of 0.5 on wheat imports. a. Determine and graph the effects of the tariff on the following: (1) the price of wheat in each country; (2) the quantity of wheat supplied and demanded in each country; (3) the volume of trade. b
> Suppose workers involved in manufacturing are paid less than all other workers in the economy. What would be the effect on the real income distribution within the economy if there were a substantial tariff levied on manufactured goods?
> It has been all downhill for the West since China entered the world market; we just can’t compete with hundreds of millions of people willing to work for almost nothing.” Discuss.
> If tariffs, quotas, and subsidies each cause net welfare losses, why are they so common, especially in agriculture, among the industrialized countries such as the United States and the members of the European Union?
> Home’s demand curve for wheat is D = 100 - 20P. Its supply curve is S = 20 + 20P. Derive and graph Home’s import demand schedule. What would the price of wheat be in the absence of trade?
> Most firms in the apparel and footwear industries choose to outsource production to countries where labor is abundant (primarily, Southeast Asia and the Caribbean)—but those firms do not integrate with their suppliers there. On the other hand, firms in m
> If there are internal economies of scale, why would it ever make sense for a firm to produce the same good in more than one production facility?
> For each of the following, specify whether the foreign direct investment is horizontal or vertical; in addition, describe whether that investment represents an FDI inflow or outflow from the countries that are mentioned. a. McDonald’s (a U.S. multination
> Which of the following are direct foreign investments? a. A Saudi businessman buys $10 million of IBM stock. b. The same businessman buys a New York apartment building. c. A French company merges with an American company; stockholders in the U.S. company
> In the chapter, we described a situation where dumping occurs between two symmetric countries. Briefly describe how things would change if the two countries had different sizes. a. How would the number of firms competing in a particular market affect the
> Go back to the model with firm performance differences in a single integrated market (pp. 188–190). Now assume a new technology becomes available. Any firm can adopt the new technology, but its use requires an additional fixed-cost investment. The benefi
> Suppose that fixed costs for a firm in the automobile industry (start-up costs of factories, capital equipment, and so on) are $5 billion and that variable costs are equal to $17,000 per finished automobile. Because more firms increase competition in the
> Suppose the two countries we considered in the numerical example on pages 180–184 were to integrate their automobile market with a third country, which has an annual market for 3.75 million automobiles. Find the number of firms, the output per firm, and
> A century ago, most British imports came from relatively distant locations: North America, Latin America, and Asia. Today, most British imports come from other European countries. How does this fit in with the changing types of goods that make up world t
> Consider the example of industries in problem 9. What would those choices imply for the extent of intra-firm trade across industries? That is, in what industries would a greater proportion of trade occur within firms? Data from Problem 9: Most firms in
> In perfect competition, firms set price equal to marginal cost. Why can’t firms do this when there are internal economies of scale?
> As we saw in the text, Bangladesh has seen rapidly growing apparel exports as Chinese wages rise. One problem, however, is that Bangladeshi producers are mainly in or near the capital city of Dhaka, which literally has the world’s worst traffic. What doe
> In our discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it’s to the advantage of both workers and firms that they be able to draw on a single
> Recently, a growing labor shortage has been causing Chinese wages to rise. If this trend continues, what would you expect to see happen to external economy industries currently dominated by China? Consider, in particular, the situation illustrated in Fig
> It is fairly common for an industrial cluster to break up and for production to move to locations with lower wages when the technology of the industry is no longer rapidly improving—when it is no longer essential to have the absolutely most modern machin
> Consider a situation similar to that in Figure 7-3, in which two countries that can produce a good are subject to forward-falling supply curves. In this case, however, suppose the two countries have the same costs, so that their supply curves are identic
> Evaluate the relative importance of economies of scale and comparative advantage in causing the following: a. Most of the world’s aluminum is smelted in Norway or Canada. b. Half of the world’s large jet aircraft are assembled in Seattle. c. Most semicon
> Give two examples of products that are traded on international markets for which there are dynamic increasing returns. In each of your examples, show how innovation and learning-by-doing are important to the dynamic increasing returns in the industry
> It is often argued that the existence of increasing returns is a source of conflict between countries, since each country is better off if it can increase its production in those industries characterized by economies of scale. Evaluate this view in terms
> Over the past few decades, East Asian economies have increased their share of world GDP. Similarly, intra–East Asian trade—that is, trade among East Asian nations—has grown as a share of world trade. More than that, East Asian countries do an increasing
> For each of the following examples, explain whether it is a case of external or internal economies of scale: a. A number of firms doing contract research for the drug industry are concentrated in south eastern South Carolina. b. All Hondas produced in th
> From an economic point of view, India and China are somewhat similar: Both are huge, low-wage countries, probably with similar patterns of comparative advantage, which until recently were relatively closed to international trade. China was the first to o
> Economic growth is just as likely to worsen a country’s terms of trade as it is to improve them. Why, then, do most economists regard immiserizing growth, where growth actually hurts the growing country, as unlikely in practice?
> Countries A and B have two factors of production, capital and labor, with which they produce two goods, X and Y. Technology is the same in the two countries. X is capital-intensive; A is capital-abundant. Analyze the effects on the terms of trade and on
> Japan primarily exports manufactured goods, while importing raw materials such as food and oil. Analyze the impact on Japan’s terms of trade of the following events: a. A war in the Middle East disrupts oil supply. b. Korea develops the ability to produc
> The counterpart to immobile factors on the supply side would be lack of substitution on the demand side. Imagine an economy where consumers always buy goods in rigid proportions—for example, one yard of cloth for every pound of food—regardless of the pri
> In some economies relative supply may be unresponsive to changes in prices. For example, if factors of production were completely immobile between sectors, the production possibility frontier would be right-angled, and output of the two goods would not d
> In the trade scenario in problem 1, due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. This change causes both a reduction in the potential quantity of fish that can be produced in Norway and an incre
> Which of the following countries would you expect to have intertemporal production possibilities biased toward current consumption goods, and which biased toward future consumption goods? a. A country like Argentina or Canada in the last century that has
> Explain the analogy between international borrowing and lending and ordinary international trade.
> Equation (2.1) says that trade between any two countries is proportional to the product of their GDPs. Does this mean that if the GDP of every country in the world doubled, world trade would quadruple?
> Suppose Country X subsidizes its exports and Country Y imposes a “countervailing” tariff that offsets the subsidy’s effect, so that in the end, relative prices in Country Y are unchanged. What happens to the terms of trade? What about welfare in the two
> In the discussion of empirical results on the Heckscher-Ohlin model, we noted that recent work suggests that the efficiency of factors of production seems to differ internationally. Explain how this would affect the concept of factor-price equalization.
> Explain why the Leontief paradox and the more recent Bowen, Leamer, and Sveikauskas results reported in the text contradict the factor-proportions theory.
> Recently, computer programmers in developing countries such as India have begun doing work formerly done in the United States. This shift has undoubtedly led to substantial pay cuts for some programmers in the United States. Answer the following two ques
> The U.S. labor movement—which mostly represents blue-collar workers rather than professionals and highly educated workers—has traditionally favored limits on imports from less-affluent countries. Is this a short sighted policy or a rational one in view o
> The world’s poorest countries cannot find anything to export. There is no resource that is abundant—certainly not capital or land, and in small poor nations not even labor is abundant.” Discuss.
> In the United States, where land is cheap, the ratio of land to labor used in cattle raising is higher than that of land used in wheat growing. But in more crowded countries, where land is expensive and labor is cheap, it is common to raise cows by using
> Go back to the numerical example with no factor substitution that leads to the production possibility frontier in Figure 5-1. Data from Figure 5-1: a. What is the range for the relative price of cloth such that the economy produces both cloth and food
> Studies of the effects of immigration into the United States from Mexico tend to find that the big winners are the immigrants themselves. Explain this result in terms of the example in problem 6. How might things change if the border were open, with no r
> Using the numerical example in problem 5, assume now that Foreign limits immigration so that only two workers can move there from Home. Calculate how the movement of these two workers affects the income of five different groups: Problem 5: In Home and
> Mexico and Brazil have very different trading patterns. While Mexico trades mainly with the United States, Brazil trades about equally with the United States and with the European Union. In addition, Mexico does much more trade relative to its GDP. Expla
> In Home and Foreign, there are two factors each of production, land, and labor used to produce only one good. The land supply in each country and the technology of production are exactly the same. The marginal product of labor in each country depends on
> Consider two countries (Home and Foreign) that produce goods 1 (with labor and capital) and 2 (with labor and land) according to the production functions described in problems 2 and 3. Initially, both countries have the same supply of labor (100 units ea
> The marginal product of labor curves corresponding to the production functions in problem 2 are as follows: Data from Problem 2: An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 un
> An economy can produce good 1 using labor and capital and good 2 using labor and land. The total supply of labor is 100 units. Given the supply of capital, the outputs of the two goods depend on labor input as follows: a. Graph the production functions
> In 1986, the price of oil on world markets dropped sharply. Since the United States is an oil-importing country, this was widely regarded as good for the U.S. economy. Yet in Texas and Louisiana, 1986 was a year of economic decline. Why?
