We have focused on the case of trade involving only two countries. Suppose that there are many countries capable of producing two goods, and that each country has only one factor of production, labor. What could we say about the pattern of production and trade in this case? (Hint: Try constructing the world relative supply curve.)
> 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?
> Suppose that instead of 1,200 workers, Home has 2,400. Find the equilibrium relative price. What can you say about the efficiency of world production and the division of the gains from trade between Home and Foreign in this case?
> Now suppose world relative demand takes the following form: Demand for apples>demand for bananas = price of bananas>price of apples. a. Graph the relative demand curve along with the relative supply curve. b. What is the equilibrium relative price of app
> Home is as described in problem 1. There is now also another country, Foreign, with a labor force of 800. Foreign’s unit labor requirement in apple production is 5, while in banana production it is 1. Data from Problem 1: Home has 1,200 units of labor
> Home has 1,200 units of labor available. It can produce two goods, apples and bananas. The unit labor requirement in apple production is 3, while in banana production it is 2. a. Graph Home’s production possibility frontier. b. What is the opportunity co
> Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada’s is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia’s. Why should this be the case?
> In 2008, it appeared that rising gas prices had made Californians less resistant to offshore drilling. A Field Poll survey showed that a higher proportion of Californians supported the idea of drilling for oil or natural gas along the state’s coast than
> Enacted in 1998, the Children’s Online Privacy Protection Act requires firms to obtain parental consent before tracking the information and the online movement of children; however, the act applies to those children ages 12 and under. Teenagers are often
> It is common to ignore the thyroid gland of women during pregnancy (The New York Times, April 13, 2009). This gland makes hormones that govern metabolism, helping to regulate body weight, heart rate, and a host of other factors. If the thyroid malfunctio
> Ever since the introduction of New Coke failed miserably in the 1980s, most food and beverage companies have been cautious about changing the taste or formula of their signature offerings. In an attempt to attract more business, Starbucks recently introd
> Assume high school coach Emily Williams has seven possible swimmers for a four-person relay team. a. If the order for the freestyle relay is unimportant, how many different relay teams are possible? b. Assume for the medley relay team that order is impor
> Prior to the start of the season, a sports analyst is attempting to predict the end-of-season rankings of the 10 teams in a conference. a. How many different ways can the teams be ranked if ties are not considered? b. How many different outcomes are poss
> According to the Census’s Population Survey, the percentage of children with two parents at home is the highest for Asians and lowest for blacks (USA Today, February 26, 2009). It is reported that 85% of Asian children have two parents at home versus 78%
> A 2015 national survey by the Washington Post-Kaiser Family Foundation finds that there is a big gender divide between Americans when identifying as feminist or strong feminist. The results of the survey are shown in the following table. In addition, per
> Suppose that 60% of the students do homework regularly. It is also known that 80% of students who had been doing homework regularly end up doing well in the course (get a grade of A or B). Only 20% of students who had not been doing homework regularly en
> According to data from the National Health and Nutrition Examination Survey, 36.5% of adult women and 26.6% of adult men are at a healthy weight. Suppose 50.52% of the adult population consists of women. a. What proportion of adults is at a healthy weigh
> Let P(A) = 0.55, P(B) = 0.30, and P (A ∩ B) = 0.10. a. Calculate P (A ∣ B). b. Calculate P (A ∪ B). c. Calculate P ((A ∪ B)c).
> Consider the following scenarios to determine if the mentioned combination of attributes represents a union or an intersection. a. There are two courses that seem interesting to you, and you would be happy if you can take at least one of them. b. There a
> Apparently, depression significantly increases the risk of developing dementia later in life (BBC News, July 6, 2010). In a study, it was reported that 22% of those who had depression went on to develop dementia, compared to only 17% of those who did not
> An analyst predicts that there is a 40% chance that the U.S. economy will perform well. If the U.S. economy performs well, then there is an 80% chance that Asian countries will also perform well. On the other hand, if the U.S. economy performs poorly, th
> It has been reported that women end up unhappier than men later in life, even though they start out happier (Yahoo News, August 1, 2008). Early in life, women are more likely to fulfill their family life and financial aspirations, leading to greater over
> A study in the Journal of the American Medical Association (February 20, 2008) found that patients who go into cardiac arrest while in the hospital are more likely to die if it happens after 11 pm. The study investigated 58,593 cardiac arrests that occur
> At a local bar in a small Midwestern town, beer and wine are the only two alcoholic options. The manager noted that of all male customers who visited over the weekend, 150 ordered beer, 40 ordered wine, and 20 asked for soft drinks. Of female customers,
> It has generally been believed that it is not feasible for men and women to be just friends (The New York Times, April 12, 2012). Others argue that this belief may not be true anymore since gone are the days when men worked and women stayed at home and t
> A professor of management has heard that eight students in his class of 40 have landed an internship for the summer. Suppose he runs into two of his students in the corridor. a. Find the probability that neither of these students has landed an internship
> According to the CGMA Economic Index, which measures executive sentiment across the world, 18% of all respondents expressed optimism about the global economy (www.aicpa.org, March 29, 2012). Moreover, 22% of the respondents from the United States and 9%
> A study shows that unemployment does not impact males and females in the same way (Newsweek, April 20, 2009). According to a Bureau of Labor Statistics report, 8.5% of those who are eligible to work are unemployed. The unemployment rate is 8.8% for eligi
> Let P(A) = 0.65, P(B) = 0.30, and P (A ∣ B) = 0.45. a. Calculate P (A ∩ B). b. Calculate P (A ∪ B). c. Calculate P (B ∣ A).
> Wooden boxes are commonly used for the packaging and transportation of mangoes. A convenience store in Morganville, New Jersey, regularly buys mangoes from a wholesale dealer. For every shipment, the manager randomly inspects two mangoes from a box conta
> Consider the following scenarios to determine if the mentioned combination of attributes represents a union or an intersection. a. A marketing firm is looking for a candidate with a business degree and at least five years of work experience. b. A family
> Anthony Papantonis, owner of Nauset Construction, is bidding on two projects, A and B. The probability that he wins project A is 0.40 and the probability that he wins project B is 0.25. Winning Project A and winning Project B are independent events. a. W
> How much you smile in your younger days can predict your later success in marriage (www.msnbc.com, April 16, 2009). The analysis is based on the success rate in marriage of people over age 65 and their smiles when they were only 10 years old. Researchers
> The following frequency distribution shows the ages of India’s 40 richest individuals. One of these individuals is selected at random. a. What is the probability that the individual is between 50 and 60 years of age? b. What is the pr
> The Easy Credit Company reports the following table representing a breakdown of customers according to the amount they owe and whether a cash advance has been made. An auditor randomly selects one of the accounts. a. What is the probability that a cust
> Henry Chow is a stockbroker working for Merrill Lynch. He knows from past experience that there is a 70% chance that his new client will want to include U.S. equity in her portfolio and a 50% chance that she will want to include foreign equity. There is
> According to eMarketer estimates, 88.3% of 12- to 17-year-olds had a mobile phone in 2016. Among those with mobile phones, 84.0% had smartphones. Calculate the proportion of 12- to 17-year-olds who had smartphones.
> AccuScore calculated an 84% chance that there would be a fight during the game between the Anaheim Ducks and the Chicago Blackhawks, two of the National Hockey League’s most pugnacious teams (The Wall Street Journal, March 3, 2009). What are the odds for
> According to a global survey of 4,400 parents of children between the ages of 14 to 17, 44% of parents spy on their teen’s Facebook account (www.msnbc.com, April 25, 2012). Assume that American parents account for 10% of all parents of teens with Faceboo
> Prior to the Academy Awards ceremony in 2009, the United Kingdom bookmaker Ladbrokes reported the following odds for winning an Oscar in the category of best actress (The Wall Street Journal, February 20, 2009). a. Express the odds for each actress win
> David Barnes and his fiancée Valerie Shah are visiting Hawaii. At the Hawaiian Cultural Center in Honolulu, they are told that 2 out of a group of 8 people will be randomly picked for a free lesson of a Tahitian dance. a. What is the probability that bot
> Jacqueline Fibbe manages 10 employees at a small ice cream store in Beverly Farms, MA. She assigns three employees for each eight-hour shift. a. If order is not important, in how many different ways can she select three employees from the total of 10 for
> Jane Peterson has taken Amtrak to travel from New York to Washington, DC, on six occasions, of which three times the train was late. Therefore, Jane tells her friends that the probability that this train will arrive on time is 0.50. Would you label this
> A horse-racing fan is contemplating the many different outcomes in an eight-horse race. a. How many different outcomes are possible if only the first three places are considered and ranking (first, second, and third) is important? b. If each of the outco
> There are 10 players on the local basketball team. The coach decides to randomly pick 5 players to start the game. a. In how many different ways can the coach select 5 players to start the game if order does not matter? b. In how many different ways can
> Twenty cancer patients volunteer for a clinical trial. Ten of the patients will receive a placebo and 10 will receive the trial drug. In how many different ways can the researchers select 10 patients to receive the trial drug from the total of 20?
> At a local elementary school, a principal is making random class assignments for her 8 teachers. Each teacher must be assigned to exactly one job. In how many ways can the assignments be made?
> Calculate the following values. a. 7! and 3! b. 7C3 c. 7P3
> Calculate the following values. a. 8! and 6! b. 8C6 c. 8P6
> An analyst thinks that next year there is a 20% chance that the world economy will be good, a 50% chance that it will be neutral, and a 30% chance that it will be poor. She also predicts probabilities that the performance of a start-up firm, Creative Ide
> On Sunday, July 11, 2010, Spain and the Netherlands played in the 2010 World Cup Final in Johannesburg. On the eve of the final, many betting lines were offering Spain’s odds for winning at 15:8 (Odds checker website). a. Spain won the World Cup. Suppos
> A crucial game of the Los Angeles Lakers basketball team depends on the health of their key player. According to his doctor’s report, there is a 40% chance that he will be fully fit to play, a 30% chance that he will be somewhat fit to play, and a 30% ch
> According to data from the National Health and Nutrition Examination Survey, 33% of white, 49.6% of black, 43% of Hispanic, and 8.9% of Asian women are obese. In a representative town, 48% of women are white, 19% are black, 26% are Hispanic, and the rema
> According to a study, cell phones are the main medium for teenagers to stay connected with friends and family (CNN, March 19, 2012). It is estimated that 90% of older teens and 60% of younger teens own a cell phone. Suppose 70% of all teens are older tee
> Survey data, based on 65,000 mobile phone subscribers, shows that 44% of the subscribers use smartphones (Forbes, December 15, 2011). Based on this information, you infer that the probability that a mobile phone subscriber uses a smartphone is 0.44. Woul
> The State Police are trying to crack down on speeding on a particular portion of the Massachusetts Turnpike. To aid in this pursuit, they have purchased a new radar gun that promises greater consistency and reliability. Specifically, the gun advertises ±
> An analyst expects that 20% of all publicly traded companies will experience a decline in earnings next year. The analyst has developed a ratio to help forecast this decline. If the company is headed for a decline, there is a 70% chance that this ratio w
