Chapter 18, International Trade and Finance Video Solutions, Macroeconomics for Today

Problem 1

The countries of Alpha and Beta produce diamonds and pearls. The production possibilities schedule below describes their potential output in tUsing the data in the table, answer the following questions:
a. What is the opportunity cost of diamonds for each country?
b. What is the opportunity cost of pearls for each country?
c. In which good does Alpha have a comparative advantage?
d. In which good does Beta have a comparative advantage?
e. Suppose Alpha is producing and consuming at point $B$ on its production possibilities curve and Beta is producing and consuming at point $C$ on its production possibilities curve. Use a table such as Exhibit 3 to explain why both nations would benefit if they specialize.
f. Draw a graph, and use it to explain how Alpha and Beta benefit if they specialize and Alpha agrees to trade 50 tons of diamonds to Beta and Alpha receives 50 tons of pearls in exchange.ons per year:

Rashmi Sinha

Numerade Educator

14:45

Problem 2

Bill can paint either two walls or one window frame in one hour. In the same time, Frank can paint either three walls or two window frames. To minimize the time spent painting, who should specialize in painting walls, and who should specialize in painting window frames?

Stephanie Carter

Numerade Educator

01:17

Problem 3

Consider this statement: "The principles of specialization and trade according to comparative advantage among nations also apply to states in the United States." Do you agree or disagree? Explain.

Daniel Cisneros

Numerade Educator

Problem 4

Would the U.S. government gain any advantage from using tariffs or quotas to restrict imports?

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Problem 5

Suppose the United States passed a law stating that we would not purchase imports from any country that imposed any trade restrictions on our exports. Who would benefit and who would lose from such retaliation?

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Problem 6

Now consider question 5 in terms of the law's impact on domestic producers that export goods. Does this policy adversely affect domestic producers that export goods?

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Problem 7

Consider this statement: "Unrestricted foreign trade costs domestic jobs." Do you agree or disagree? Explain.

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Problem 8

Do you support a constitutional amendment to prohibit the federal government from imposing any trade barriers, such as tariffs and quotas, except in case of war or national emergency? Why or why not?

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Problem 9

Discuss this statement: "Because each nation's balance of payments equals zero, it follows that there is actually no significance to a balance of payments deficit or surplus."

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01:47

Problem 10

For each of the following situations, indicate the direction of the shift in the supply curve or the demand curve for dollars, the factor causing the change, and the resulting movement of the equilibrium exchange rate for the dollar in terms of foreign currency:
a. American-made cars become more popular overseas.
b. The United States experiences a recession, while other nations enjoy economic growth.
c. Inflation rates accelerate in the United States, while inflation rates remain constant in other nations.
d. Real interest rates in the United States rise, while real interest rates abroad remain constant.
e. The Japanese put quotas and high tariffs on all imports from the United States.
f. Tourism from the United States increases sharply because of a fare war among airlines.

Doris Bennett

Numerade Educator

01:05

Problem 11

The following table summarizes the supply and the demand for euros:
Using the above table:
a. Graph the supply and demand curves for euros.
b. Determine the equilibrium exchange rate.
c. Determine what the effect of a fixed exchange rate at $$\$ 0.10$$ per euro would be.

Erwin Antoni

Numerade Educator