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Figure 6-9
When there are external economies, trade can potentially leave a country worse off than it would be in the absence of trade. In this example, Thailand imports watches from Switzerland, which is able to supply the world market (DW0RLD) at a price (P1) low enough to block entry by Thailand producers who must initially produce the watches at cost Co. Yet if Thailand were to block all trade in watches, it would be able to supply its domestic market (DTHAI) at the lower price P2.
Chapter 7
25. International borrowing and lending is regarded as intertemporal trade.
(1)Explain intertemporal comparative advantage、gains form intertemporal trade. (2)How could gains form intertemporal trade affect the concept of “external balance”?
Answer:
⑴ The sources of intertemporal comparative advantage are somewhat different from those that give rise to ordinary trade.
A country that has a comparative advantage in future production of consumption goods is one that in the absence of international borrowing and lending would Jiave a low relative price of future consumption, that is, a high real interest rate. This high real interest rate corresponds to a high return on investment, that is, a high return to diverting resources from current production of consumption goods to production of capital goods, construction, and other activities that enhance the economy's future ability to produce. So countries that borrow in the international market will be those where highly productive investment opportunities are available relative to current productive capacity, while countries that lend will be those where such opportunities are not available domestically.
⑵ When a country borrows, it get the right to purchase some quantity of consumption at present in return for repayment of some larger quantity in the future; (1+r) times; the relative price of QP is (1+r).
Intertemporal comparative advantage and intertemporal trade
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孙铱 Wednesday, January 14, 2009
Figure 7A-2 Figure 7A-3
Home?s intertemporal PPF is biased toward QP── stronger present productive capacity relative to future productive investment opportunity. If the preferences are the same, the relative price of QP in Home is lower than the Foreign?s (intertemporal comparative advantage). Home exports present consumption (lending) while Foreign exports future consumption (borrowing).
Home: (QP?DP)(1+r) =DF?QF
Foreign: QF*?DF*= (DP*?QP*)(1+r)
Chapter 8
26.Suppose X2 and X3 are inputs of the production of X1,the input-output coefficient ?21=0.2, ?31=0.5. The import tariff of X1、X2 and X3 are as followings, please calculate the effective rate of protection of X1.
(1)t1=30%、t2=20%、t3=10% (2)t1=30%、t2=40%、t3=50%
Answer: ERP=(VT?VW) / VW
VT: value added in the presence of trade policies VW: value added at world price (1) VW=(1–0.2–0.5) =0.3
VT = [(1+0.3) –0.2×(1+0.2)–0.5×(1+0.1)] =0.51 ERP =(VT?VW) / VW =(0.51–0.3) / 0.3=70% (2) VW=(1–0.2–0.5) =0.3
VT = [(1+0.3) –0.2×(1+0.4)–0.5×(1+0.5)] =0.27 ERP = (VT?VW) / VW = (0.27–0.3) / 0.3=-10%
27. Home?s and Foreign?s demand curve and supply curve are:
D=100－20P S=20+20P D*=80－20P S*=40+20P
Starting from free trade (PW=1.5, D*=50, S*=70), assume that Foreign offers exporters a subsidy of 0.5 per unit. (1) Calculate the effects on the price in each country; (2) Calculate the effects on Home?s welfare, both of individual groups and of the economy as a whole. Answer:
XS=MD，PS= PS*－0. 5
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孙铱 Wednesday, January 14, 2009
(40+20 PS*)－(80－20 PS*)=[100－20×(PS*－0.5)]－[20+20×(PS*－0.5)] 80 PS*=140，PS*=1.75，PS=1.25
C* : －(a+b)=1/2×(45+50)×(1.75－1.50)=－11.25 P* : +(a+b+c)=1/2×(75+70)×(1.75－1.50)=+18.125 G* : －(b+c+d+e+f+g)= (75－45)×(1.75－1.25)=－15.0 N* : －[(b +d)+(e+f+g)] =－8. 75
C : +(a+b+c+d)=1/2×(70+75)×(1. 5－1.25)=+18.125 P : －a=－1/2×(45+50)×(1. 5－1.25)=－11. 25 G: 0
N: + (b+c+d) =+6.875
28. The nation of Acirema is “small”, unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve is D=500–10P .The supply curve is S=50+5P. Determine the free trade equilibrium. Then calculate and graph the following effects of an import quota that limits imports to 150 bags. (1)The increase in the domestic price (2)The quota rents
(3)The consumption distortion loss (4)The production distortion loss Answer:
P=10$，D=400－10P=300，S=50+5P=100
A quota limiting the import of peanuts to 50 bags,
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孙铱 Wednesday, January 14, 2009
a. MD=D－S=(400－10Pq)－(50+5 Pq)=50，Pq=20； D=400－10×20=200，S=50+5×20=150 b. The quota rents are (20$－10$)×50=500$.
c. The consumption distortion loss is 1/2×(300－200)×(20－10)=500$ d. The production distortion loss is1/2×(150－100)×(20－10)=250$
29. Initially, a tariff and an import quota of a “small” country raise domestic price to the same level. How will the following situations affect domestic production, consumption and import? Draw figures to analyse and compare these effects，respectively.
(1) The world price of import goods decline suddenly. (2) Domestic income, and then demand, increases greatly. Anwer:
(1) 如上图，商品的世界价格突然下降：
①在关税条件下，造成国内价格同幅度下降。这时会刺激国内消费，但由于价格下降国内厂商会减少生产。需求的增长将依靠进口补充，还会进一步造成国内生产的萎缩。（）
②在配额条件下，由于配额固定，即便价格下降也不能增加进口。国内市场的供求不受这一变化的影响。
（2） 国内居民收入上升，使得需求上升，国内需求曲线右移。
①在关税条件下，国内需求上升，在小国假设下，其不足以影响国际市场上的世界价格。进口品的价格不变，所增加的需求将全部由进口商品补足。 ②在配额条件下，国内需求增加，但进口配额是的进口商品数额不变。国内增长的需求将刺激国内厂商增加生产。需求缺口全部由国内厂商生产补足。
综上可知，进口配额是比关税更加严格、苛刻的一种保护手段。
Chapter 9
30. “U.S. farm exports don?t just mean higher incomes for farmers — they mean higher income for everyone who sell goods and services to the U.S. farm sector”. This remark is a potential valid argument for export subsidy.
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孙铱 Wednesday, January 14, 2009
Answer:
The higher income of farmers due to export subsidies and the potentially higher income to those who sell goods and services to the farmers come at the expense of consumers and taxpayers. Unless there is some domestic market failure, an export subsidy always produces more costs than benefits. Indeed ,if the goal of policy is to stimulate the demand for the associated goods and services should be targeted directly at these goals.
【农民因为出口补贴而增加的收入和那些把产品以及服务出售给美国农业部门的人所增加
是收入都是以消费者和纳税人的利益作为代价的。一般情况下，出口补贴的成本大于收益，除非存在国内市场失灵。事实上，如果一项政策的目的是增加相关产品或服务的需求，那么这项政策应该以需求为直接目标。】
31. What is the domestic market failure argument against free trade? How convincing is the market failure argument? Answer:
The domestic market failure argument against free trade
·Domestic market failure: dual labor market; imperfect capital market; technological
spillover, ??????
·Technological spillover case for protection
If the production of a good yields experience that improve the technology of the economy as a whole but the firms can?t get this benefit (the market failure of externality), a sufficiently small tariff that yields marginal social benefit must outweigh the efficiency loss.
Figure 9-3 The Domestic Market Failure Argument for a Tariff
TRADE POLICY (tariff):
P：+a
C：－（a+b+c+d）
G: +c
MSB:+e
N: e－(b+d)
3. How convincing is the market failure argument?
(1)·“Specific rule”: domestic market failure should be corrected by domestic policies aimed directly at the problem?s sources.
If the same production increase (S1 to S2) were achieved via a production subsidy rather than a tariff, the consumption loss b will be avoided.
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