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Principles of Microeconomics for AP® Courses 2e

Steven A. Greenlaw, David Shapiro, Timothy Taylor

Chapter 20

Globalization and Protectionism

Educators


Problem 1

Explain how a tariff reduction causes an increase in the equilibrium quantity of imports and a decrease in the equilibrium price. Hint: Consider the Work It Out "Effects of Trade Barriers."

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Problem 2

Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.

Srikar K.
Numerade Educator

Problem 3

Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

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Problem 4

Explain how trade barriers save jobs in protected industries, but only by costing jobs in other industries.

Srikar K.
Numerade Educator

Problem 5

How does international trade affect working conditions of low-income countries?

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Problem 6

Do the jobs for workers in low-income countries that involve making products for export to high-income countries typically pay these workers more or less than their next-best alternative?

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Numerade Educator

Problem 7

How does the cost of "saving" jobs in protected industries compare to the workers' wages and salaries

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Problem 8

How does the cost of "saving" jobs in protected industries compare to the workers' wages and salaries?

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Problem 9

Explain how predatory pricing could be a motivation for dumping.

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Problem 10

Why do low-income countries like Brazil, Egypt, or Vietnam have lower environmental standards than high- income countries like the Germany, Japan, or the United States?

Srikar K.
Numerade Educator

Problem 11

Explain the logic behind the "race to the bottom" argument and the likely reason it has not occurred.

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Problem 12

What are the conditions under which a country may use the unsafe products argument to block imports?

Srikar K.
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Problem 13

Why is the national security argument not convincing?

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Problem 14

Assume a perfectly competitive market and the exporting country is small. Using a demand and supply diagram, show the impact of increasing standards on a low-income exporter of toys. Show the tariff's impact. Is the effect on toy prices the same or different? Why is a standards policy preferred to tariffs?

Srikar K.
Numerade Educator

Problem 15

What is the difference between a free trade association, a common market, and an economic union?

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Problem 16

Why would countries promote protectionist laws, while also negotiate for freer trade internationally?

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Problem 17

What might account for the dramatic increase in international trade over the past 50 years?

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Problem 18

How does competition, whether domestic or foreign, harm businesses?

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Problem 19

What are the gains from competition?

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Problem 20

Who does protectionism protect? From what does it protect them?

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Problem 21

Name and define three policy tools for enacting protectionism.

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Problem 22

How does protectionism affect the price of the protected good in the domestic market?

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Problem 23

Does international trade, taken as a whole, increase the total number of jobs, decrease the total number of jobs, or leave the total number of jobs about the same?

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Problem 24

Is international trade likely to have roughly the same effect on the number of jobs in each individual
industry?

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Problem 25

How is international trade, taken as a whole, likely to affect the average level of wages?

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Problem 26

Is international trade likely to have about the same effect on everyone’s wages?

Srikar K.
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Problem 27

What are main reasons for protecting “infant industries”? Why is it difficult to stop protecting them?

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Problem 28

What is dumping? Why does prohibiting it often work better in theory than in practice?

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Problem 29

What is the "race to the bottom" scenario?

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Problem 30

Do the rules of international trade require that all nations impose the same consumer safety standards?

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Problem 31

Do the rules of international trade require that all nations impose the same consumer safety standards?

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Problem 32

Name several of the international treaties where countries negotiate with each other over trade policy.

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Problem 33

What is the general trend of trade barriers over recent decades: higher, lower, or about the same?

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Problem 34

If opening up to free trade would benefit a nation, then why do nations not just eliminate their trade
barriers, and not bother with international trade negotiations?

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Problem 35

Who gains and who loses from trade?

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Problem 36

Why is trade a good thing if some people lose?

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Problem 37

What are some ways that governments can help people who lose from trade?

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Problem 38

Show graphically that for any tariff, there is an equivalent quota that would give the same result. What
would be the difference, then, between the two types of trade barriers? Hint: It is not something you can see from the graph.

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Numerade Educator

Problem 39

From the Work It Out "Effects of Trade Barriers," you can see that a tariff raises the price of imports.
What is interesting is that the price rises by less than the amount of the tariff. Who pays the rest of the tariff amount? Can you show this graphically?

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Problem 40

If trade barriers hurt the average worker in an economy (due to lower wages), why does government
create trade barriers?

Srikar K.
Numerade Educator

Problem 41

Why do you think labor standards and working conditions are lower in the low-income countries of the
world than in countries like the United States?

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Problem 42

How would direct subsidies to key industries be preferable to tariffs or quotas?

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Problem 43

How can governments identify good candidates for infant industry protection? Can you suggest some key characteristics of good candidates? Why are industries like computers not good candidates for infant industry protection?

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Problem 44

Microeconomic theory argues that it is economically rationale (and profitable) to sell additional
output as long as the price covers the variable costs of production. How is this relevant to the determination of whether dumping has occurred?

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Problem 45

How do you think Americans would feel if other countries began to urge the United States to increase
environmental standards?

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Problem 46

Is it legitimate to impose higher safety standards on imported goods that exist in the foreign country where the goods were produced?

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Problem 47

Why might the unsafe consumer products argument be a more effective strategy (from the perspective of the importing country) than using tariffs or quotas to restrict imports?

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Problem 48

Why might a tax on domestic consumption of resources critical for national security be a more
efficient approach than barriers to imports?

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Problem 49

Why do you think that the GATT rounds and, more recently, WTO negotiations have become longer and
more difficult to resolve?

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Problem 50

An economic union requires giving up some political autonomy to succeed. What are some examples
of political power countries must give up to be members of an economic union?

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Problem 51

What are some examples of innovative products that have disrupted their industries for the better?

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Problem 52

In principle, the benefits of international trade to a country exceed the costs, no matter whether the country is importing or exporting. In practice, it is not always possible to compensate the losers in a country, for example, workers who lose their jobs due to foreign imports. In your opinion, does that mean that trade should be inhibited to prevent the losses?

Srikar K.
Numerade Educator

Problem 53

Economists sometimes say that protectionism is the “second-best” choice for dealing with any particular problem. What they mean is that there is often a policy choice that is more direct or effective for dealing with the problem—a choice that would still allow the benefits of trade to occur. Explain why protectionism is a “second-best” choice for:
a. helping workers as a group
b. helping industries stay strong
c. protecting the environment
d. advancing national defense

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Problem 54

Trade has income distribution effects. For example, suppose that because of a government negotiated reduction in trade barriers, trade between Germany and the Czech Republic increases. Germany sells house paint to the Czech Republic. The Czech Republic sells alarm clocks to Germany. Would you expect this pattern of trade to increase or decrease jobs and wages in the paint industry in Germany? The alarm clock industry in Germany? The paint industry in Czech Republic? The alarm clock industry in Czech Republic? What has to happen for there to be no increase in total unemployment in both countries?

Srikar K.
Numerade Educator

Problem 55

Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras in Thailand and Japan is described by the following functions: QdT
= 60 – P
QsT
= –5 + 1
4
P QdJ
= 80 – P
QsJ
= –10 + 1
2
P
P is the price measured in a common currency used in both countries, such as the Thai Baht.
a. Compute the equilibrium price (P) and quantities (Q) in each country without trade.
b. Now assume that free trade occurs. The free- trade price goes to 56.36 Baht. Who exports and
imports cameras and in what quantities?

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Problem 56

You have just been put in charge of trade policy for Malawi. Coffee is a recent crop that is growing
well and the Malawian export market is developing. As such, Malawi coffee is an infant industry. Malawi coffee producers come to you and ask for tariff protection from cheap Tanzanian coffee. What sorts of policies will you enact? Explain.

Srikar K.
Numerade Educator

Problem 57

The country of Pepperland exports steel to the Land of Submarines. Information for the quantity demanded (Qd) and quantity supplied (Qs) in each country, in a world without trade, are given in Table 20.6 and Table 20.7.

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