ONLINECO 

Chapter 9.Exercises 7-12. Application:International trade. Gregory Mankiw. Principles of Economics.

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7. Senator Ernest Hollings once wrote that “consumers do not benefit from lower-priced imports. Glance through some mail-order catalogs and you’ll see that consumers pay exactly the same price for clothing whether it is U.S.-made or imported.” Comment.

 

8. Write a brief essay advocating or criticizing each of the following policy positions:A. The government should not allow imports if foreign firms are selling below their costs of production (a phenomenon called “dumping”) B. The government should temporarily stop the import goods for which the domestic industry is new and struggling to survive. c. The government should not allow imports from countries with weaker environmental regulation than ours.

 

9. Suppose that a technological advance in Japan lowers the world Price of televisions.A. Assume the U.S. is an importer of televisions and there are no trade restrictions. How does the technological advance affect the welfare of U.S. consumers and U.S. producers? What happens to total surplus in the United States? b. Now suppose the United States has a quota on televisión imports. How does the japanese tecnhological advance affect the welfare of U.S. consumers, U.S. producers, and the holders of import licences?

 

10. When the government of Tradeland decides to impose an import quota on foreign cars, three proposals are suggested: (1) Sell the import licenses in an auction. (2) Distribute the licenses randomly in a lottery. (3) Let people wait in line and distribute the licenses on a first come, first served basis. Compare the effects of these policies. Which policy do you think has the largest deadweight losses? Which policy has the smallest deadweight losses?Why? (Hint:The government’s other ways of raising tax revenue all cause deadweight losses themselves.)

 

11. An article in The Wall Street Journal (June 26, 1990) about sugar beet growers explained that “the government props up domestic sugar prices by curtailing imports of lower-cost sugar. Producers are guaranteed a ‘market stabilization Price’ of $o.22 a pound, about $0.09 higher tan the current world market Price.” The government mantains the higher Price by imposing an import quota.A. Illustrate the effect of this quota on the U.S. sugar market. Label the relevant prices and quantities under free trade and under the quota. b. Analyze the effects of the sugar quota using the tolos of welfare analysis c. The article also comments that “critics of the sugar program say that [the quota] has deprived numerous sugar-producing nations in the Caribbean, Latin America, and Far East of export earnings, harmed their economies, and caused political instability, while increasing Third World demand for U.S. foreign aid.” Our usual welfare analysis includes only gains and losses to U.S. Consumers and producers. What role do you think the gains or losses to people in other countries should play in our economic policy making? d. The article continues that “at home, the sugar program has helped make posible the spectacular rise of the high-fructose corn syrup industry.” Why has the sugar program had this effect? (Hint: Are sugar and corn syrup subtitles or complement?)

 

12. Consider a small country that exports Steel. Suppose that a “pro-trade” government decides to subsidize the export of Steel by paying certain amount for each ton sold aborad. How does this export subsidy affect the domestic Price of Steel, the quantity os Steel produced, the quantity of Steel consumed, and the quantity of Steel exported? How does it affect consumer surplus, producer surplus, and total surplus? (Hint: The analysis of an export subsidy is similar to analysis of a tariff.)