Questions related to Chapter 8, Krugman & Obstfeld

1.    Compare the welfare effects of tariffs, quotas and VERs in the small country case, assuming static demand and supply.

2.      Use a partial equilibrium analysis, i.e., supply & demand diagrams, to illustrate and describe the economic effects of a tariff on imports for a large country. In particular, show the effects on domestic production, domestic consumption, imports, prices, consumer welfare, producer welfare, government revenue, and overall (net) economic welfare. Qualify your overall conclusion, if necessary. (See chapter 8 and notes.)

3.    Discuss the welfare effects of the European Union’s Common Agriculture Policy on the EU, the US, and a developing country that imports food at the current level of world prices. Illustrate your answer with one or more graphs. (See chapter 8.)

4.    Discuss the welfare effects of the United States’ quota restricting the quantity of imported sugar. Illustrate your answer with one or more graphs. (See chapter 8.)

5.    Discuss the effects a tariff compared to a quota when there is only one domestic producer of the imported good. Illustrate your discussion with a graph. (See chapter 8 and notes.)

6.    Are tariffs and quotas equivalent in their economic effects when demand grows over time? Use the small country case to illustrate and discuss this question.

Use the Figure alongside for questions 8-15,

7. In the absence of trade, how many Widgets
   does this small country produce and consume?
    

8. In the absence of trade what is the country's
   consumer plus producer surplus?
   
    

9. With free trade and no tariffs, what is the
   quantity of Widgets imported?
   
    

10. With a specific tariff of $3 per unit,
    what is the quantity of Widget imports?
     

11. The change in Consumer Surplus due to the tariff equals _______
    
     

12. The lowest specific tariff which would be considered prohibitive is _________.
     

13. The change in Producer Surplus due to the tariff equals _______
    
     

14. The government will receive revenue of ______________ from the tariff.
    
     

15. The change in this country's welfare due to the tariff equals _______
    
     

16. Compare and contrast the nominal and effective rates of protection. (See chapter 8, pages 190-192, plus notes.)

Questions related to Chapter 9, Krugman & Obstfeld. Preferential Trade Area Slides

1. Membership in a customs union may be either welfare improving or welfare worsening. Illustrate and explain the static welfare effects. Discuss the dynamic welfare effects.

2. What are the factors that determine whether a trade-diverting customs union leads to a net increase or decrease in the welfare of its member nations?

3. Compare and contrast NAFTA and the EU in terms of the types of agreements that they are, the institutions that operate under the agreement, and the long-term goals of the arrangements.

4. Evaluate the following statement: "The push toward creating more regional trade agreements necessarily harms the multilateral liberalization process that is at the heart of the WTO." Agree or disagree. Support your position with valid arguments.

5. Write an essay on the role of the WTO in today’s international economy.

A short series of quantitative problems for chapter 9:

1. Suppose that the autarky price of commodity X is $10 in country A, $8 in country B, $6 in country C, and country A is too small to affect prices in countries B or C by trading. If country A initially imposes a nondiscriminatory ad-valorem tariff of 100 percent on its imports of commodity X from countries B and C, will country A produce commodity X domestically or import it from country B or country C? 

2. Starting with the given information from Problem 1, answer the following two questions: a) If country A subsequently forms a customs union with country B, will country A produce commodity X domestically or import it from country B or country C? b) Is the customs union that country A forms with country B trade creating, trade diverting, both or neither?

3. Start with the given information from Problem 1, but now assume that country A initially imposes a nondiscriminatory ad-valorem tariff of 50 percent (instead of 100 percent) on imports of commodity X from countries B and C. Will country A produce commodity X domestically or import it from country B or country C?

4. Starting with the given information from Problem 3, answer the following two questions: a) If country A subsequently forms a customs union with country B, will country A produce commodity X domestically or import it from country B or country C? b) Is the customs union that country A forms with country B trade creating, trade diverting, or both?

 Questions related to the packet "Commercial Policy: History and Practice"

1)   Briefly describe some of the current policies the United States has in place to limit both fairly and unfairly traded goods.

Save this topic area for the final.

2)   Explain Section 301 of the Trade Act of 1974. What is the intent of this law? How has it been implemented? How successful has it been? 

Save this topic area for the final.

3)      Why do countries impose protection even if it lowers economic welfare? (See also chapter 9)

4)      What is dumping? What changes in static welfare occur as a result of dumping? Why would firms engage in dumping? Is predatory dumping likely to occur? Is it likely to succeed? (See also chapter 6)

Save this topic area for the review portion of the final.

5)      Compare and contrast safeguard provisions and trade adjustment assistance. Which of these is most likely to be welfare improving?

Save this topic area for the final.

6)      Compare and contrast the Unconditional Most Favored Nation principle and national treatment.

Questions related to Chapter 11, Krugman & Obstfeld.

Save this CHAPTER for the final.

16) Assume that Boeing (U.S.) and Airbus (European Union) both wish
to enter the Hungarian market with the next new generation airliner. 
They both have identical cost and demand conditions
(as indicated in the graph). 




















 

a)                  Assume that Boeing is the first to enter the Hungarian market.
 Without a government subsidy what price would they
demand, and what would be their total profits?

b)                  What is the consumer surplus enjoyed by Hungarian
 consumers of Boeing aircraft in the above situation?

c)                  Suppose the European government provides Airbus with a subsidy of $4 for each airplane sold, and that the subsidy convinces Boeing to exit the Hungarian market.  Now Airbus would be the monopolist in this market.  What price would they charge, and what would be their total profits?

d)                  What would be the cost of the subsidy to European taxpayers?

e)                  What happens to the Consumer Surplus of Hungarian customers as a result of this subsidy?

f)                  What is the revenue gain or loss for Europe as a whole (including taxpayers)?

Questions related to Chapter 10, Krugman & Obstfeld

Save this CHAPTER for the final.

17.                     If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in manufacturing?

18.                          If OmL1 workers are employed in manufacturing then what is the marginal productivity of labor in agriculture? 

19.                      If manufacturing labor were to increase to OmL2, how much value would the economy as a whole gain?

20.                     Why would workers not shift from agriculture to manufacturing in the initial situation where wages are higher in the latter?

21.             If the economy were in the initial position (where OmL1 workers were in manufacturing, what economic policies might gain ABC of economic welfare?

22.                      (Another essay related to chapter 9) The U.S. is probably the most open international market among the industrialized countries.  What then does the U.S. have to gain by joining the WTO?