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1、Ch9SOLUTIONS TO TEXT PROBLEMS:Quick Quizzes1.Since wool suits are cheaper in neighboring countries, Autarka would import suits if it were to allow free trade.2.Figure 9-1 shows the supply and demand for wool suits in Autarka. With no trade, the price of suits is 3 ounces of gold, consumer surplus is
2、 area A, producer surplus is area B + C, and total surplus is area A + B + C. When trade is allowed, the price falls to 2 ounces of gold, consumer surplus rises to A + B + D (an increase of B + D), producer surplus falls to C (a decline of B), so total surplus rises to A + B + C + D (an increase of
3、D). A tariff on suit imports would reduce the increase in consumer surplus, reduce the decline in producer surplus, and reduce the gain in total surplus.Figure 9-13.Lobbyists for the textile industry might make five arguments in favor of a ban on the import of wool suits: (1) imports of wool suits d
4、estroy domestic jobs; (2) the wool-suit industry is vital for national security; (3) the wool-suit industry is just starting and needs protection from foreign competition until it gets started; (4) other countries are unfairly subsidizing their wool-suit industries; and (5) the ban on wool suits can
5、 be used as a bargaining chip in international negotiations. In defending free trade in wool suits, you could argue that: (1) free trade creates jobs in some industries even as it destroys jobs in the wool-suit industry, and allows Autarka to enjoy a higher standard of living; (2) the role of wool s
6、uits for the military is probably exaggerated; (3) government protection isnt needed for an industry to grow on its own; (4) it would be good for Autarka to buy wool suits at a subsidized price; and (5) threats against free trade may backfire, leading to lower trade and lower economic welfare for ev
7、eryone.Questions for Review1.If the domestic price that prevails without international trade is above the world price, the country does not have a comparative advantage in producing the good. If the domestic price is below the world price, the country has a comparative advantage in producing the goo
8、d. 2.If a country has a comparative advantage in producing a good, it will become an exporter when trade is allowed. If a country does not have a comparative advantage in producing a good, it will become an importer when trade is allowed. 3.Figure 9-2 illustrates supply and demand for an importing c
9、ountry. Before trade is allowed, consumer surplus is area A and producer surplus is area B + C. After trade is allowed, consumer surplus is area A + B + D and producer surplus is area C. The change in total surplus is an increase by area D.Figure 9-24.A tariff is a tax on goods produced abroad and s
10、old domestically. Tariffs have no effects if a country is an exporter of a good. If a country is an importer of a good, a tariff reduces the quantity of imports and moves the domestic market closer to its equilibrium without trade, increasing the price of the good, reducing consumer surplus and tota
11、l surplus, while raising producer surplus and government revenue.5.An import quota is a limit on the quantity of a good that can be produced abroad and sold domestically. Its economic effects are similar to those of a tariff, in that an import quota reduces the quantity of imports and moves the dome
12、stic market closer to its equilibrium without trade, increasing the price of the good, reducing consumer surplus and total surplus, while raising producer surplus. However, a tariff raises revenue for the government while an import quota creates surplus for license holders.6.The arguments given to s
13、upport trade restrictions are: (1) trade destroys jobs; (2) industries threatened with competition may be vital for national security; (3) new industries need trade restrictions to help them get started; (4) some countries unfairly subsidize their firms, so competition isnt fair; and (5) trade restr
14、ictions can be useful bargaining chips. Economists disagree with these arguments: (1) trade may destroy some jobs, but it creates other jobs; (2) arguments about national security tend to be exaggerated; (3) the government cant easily identify new industries that are worth protecting; (4) if countri
15、es subsidize their exports, doing so simply benefits consumers; and (5) bargaining over trade is a risky business, since it may backfire, making the country worse off without trade.7.A unilateral approach to achieving free trade occurs when a country removes trade restrictions on its own. Under a mu
16、ltilateral approach, a country reduces its trade restrictions while other countries do the same, based on an agreement reached through bargaining. The unilateral approach was taken by Great Britain in the 1800s and by Chile and South Korea in recent years. Example of the multilateral approach include NAFTA in 1993 and the GATT negotiations since World War II.Problems and Applica
