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Chapter 21: International Trade
Solutions Manual
Questions for Discussion
1. Suppose a lawyer can type faster than any secretary. Should the lawyer do her own typing?
Can you demonstrate the validity of your answer? (LO 21-01)
2. What would be the effects of a law requiring bilateral trade balances? (LO
21-02)
3. If a nation exported much of its output but imported little, would it be better or
worse off? How about the reverse—that is, exporting little but importing a lot? (LO
21-02).
4. How does international trade restrain the price behavior of domestic firms? (LO 21-03)
5. Suppose we refused to sell goods to any country that reduced or halted its exports to us.
Who would benefit and who would lose from such retaliation? (LO 21-02)
1
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
6. Domestic producers often base their demands for import protection on the fact that workers
in country X are paid substandard wages. Is this a valid argument for protection?
(LO 21-01)
7. On the basis of the News on page 464, how do U.S. furniture manufacturers feel about
NAFTA? How about farmers? (LO 21-03)
8. According to the U.S. Department of Commerce, three candy-making jobs are lost for every
one job protected by import quotas in the raw sugar industry. How does this happen?
(LO 21-03)
2
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
9. Who gains and who loses from nontariff barriers to Mexican trucks (World View, p.462)?
What made President Obama offer renewed negotiations? (LO 21-03)
10. Has the tariff on Chinese solar panels (World View, p. 458) affected you or your family?
Who has been affected? (LO 21-03)
Problems
1. Which countries are
(a) the two largest export markets for the United States? (See Table 21.3.)
(1) __________
(2) __________
(b) The two biggest sources of imports?
(1) __________
(2) __________
(LO 21-02)
Answer:
Feedback:
(a) According to Table 21.3, exports to Canada totaled $366 billion, making it the largest
(b) According to Table 21.3, imports from China totaled $456 billion, making it the largest
2. Suppose a country can produce a maximum of 12,000 jumbo airliners or 2,000 aircraft
carriers.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(a) What is the opportunity cost of an aircraft carrier?
(b) If another country offers to trade eight planes for one aircraft carrier, should the offer be
accepted?
(c) What is the implied price of the carrier in trade?
(LO 21-01)
Answers:
Feedback:
(a) If a country can produce a maximum of 12,000 jumbo airliners or 2,000 aircraft carriers,
(b) The country can produce 1 aircraft carrier at an opportunity cost of 6 jumbo airliners,
(c) If a country is willing to trade 8 jumbo airliners for 1 aircraft carrier, then the implied
3. If it takes 15 farmworkers to harvest 1 ton of strawberries and 3 farmworkers to harvest 1
ton of wheat, what is the opportunity cost of 5 tons of strawberries? (LO 21-01)
Feedback:
It takes 15 farmworkers to harvest 1 ton of strawberries and only 3 farmworkers to harvest
4. Alpha and Beta, two tiny islands off the east coast of Tricoli, produce pearls and pineapples.
The following production possibilities schedules describe their potential output in tons per
year:
(a) Graph the production possibilities confronting each island.
(b) What is the opportunity cost of pineapples on each island (before trade)?
Alpha: __________
4
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Beta: __________
(c) Which island has a comparative advantage in pearl production?
(d) Graph the consumption possibilities of each island with free trade.
(e) If Beta produced only pearls,
(i) How many could it produce?
(ii) How many pearls would it have to export to get 20 pineapples in return?
(iii) What is the net gain to Beta in this case?
(LO 21-02
Answers:
(a)
ALPHA
PEARLS
PINEAPPLE
0
5
10
15
20
25
30
35
40
45
50
0 2 4 6 8 10 12 14
Production
possibilities
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
BETA
PEARLS
PINEAPPLE
0
5
10
15
20
25
30
35
40
45
50
0 10 20 30 40 50
Production
possibilities
(d)
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(e) (i) 50 pearls.
Feedback:
(a) To graph the production possibilities curves for both islands, graph the coordinates
provided within the table with pearls on the horizontal axis and pineapples on the vertical
(b) For the island Alpha, at a maximum the economy could produce 12 pearls or 30
(c) To determine which island has a comparative advantage in the production of pearls, we
(d) Trade renders consumption possibilities larger than production possibilities. This
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Beta
Pineapple
sPearls
Point
A0 50
Point
B30 38
Point
C45* 0
*This number is approximate because the table provided does not give exactly how many
pineapples Beta can produce when making only 12 pearls. It is assumed here that Beta can
make 15 pineapples and 12 pearls.
(e)(i) According to the information provided in the table, the island Beta could produce a
maximum of 50 pearls.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(ii) Alpha can produce a maximum of either 30 pineapples or 12 pearls. Therefore, Alpha’s
(iii) According to the table provided as well as the accompanying graph, Beta has gained 20
5. (a) How much more are U.S. consumers paying for the 24 billion pounds of sugar they
consume each year as a result of the quotas on sugar imports? (See News, p. 461.)
(b) How much sales revenue are foreign sugar producers losing as a result of those same
quotas?
(LO 21-03)
Answers:
Feedback:
(a) According to the article, American sugar prices are 35.02 cents per pound whereas world
(b) Assuming that the entire U.S. market would be met with foreign sugar at the current
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
