International Trade Theory And Policy 12th Global Edition Paul Krugman ,Maurice Obstfeld ,Marc Melitz - Solutions

Explain how differences in resources generate a specific pattern of trade. LO.1
Discuss why the gains from trade will not be equally spread even in the long run and identify the likely winners and losers. LO.1
Understand the possible links between increased trade and rising wage inequality in the developed world. LO.1
See how empirical patterns of trade and factor prices support some (but not all) of the predictions of the factor-proportions theory. LO.1
Explain why the Leontief paradox and the more recent Bowen, Leamer, and Sveikauskas results reported in the text contradict the factor-proportions theory. LO.1
Recognize why international trade often occurs from increasing returns to scale. LO.1
Understand the differences between internal and external economies of scale. LO.1
Discuss the sources of external economies. LO.1
Discuss the roles of external economies and knowledge spillovers in shaping comparative advantage and international trade patterns. LO.1
Trade need not be the result of comparative advantage. Instead, it can result from increasing returns or economies of scale, that is, from a tendency of unit costs to be lower with larger output. Economies of scale give countries an incentive to specialize and trade even in the absence of
Economies of scale can lead to a breakdown of perfect competition, unless they take the form of external economies, which occur at the level of the industry instead of the firm. LO.1
External economies give an important role to history and accident in determining the pattern of international trade. When external economies are important, a country starting with a large advantage may retain that advantage even if another country could potentially produce the same goods more
Consider a situation similar to that in Figure 7-3, in which two countries that can produce a good are subject to forward-falling supply curves. In this case, however, suppose the two countries have the same costs, so that their supply curves are identical.a. What would you expect to be the pattern
Recently, a growing labor shortage has been causing Chinese wages to rise. If this trend continues, what would you expect to see happen to external economy industries currently dominated by China? Consider, in particular, the situation illustrated in Figure 7-4. How would change take place? LO.1
In our discussion of labor market pooling, we stressed the advantages of having two firms in the same location: If one firm is expanding while the other is contracting, it’s to the advantage of both workers and firms that they be able to draw on a single labor pool. But it might happen that both
As we saw in the text, the Chinese town of Qiaotou produces 60 percent of the world’s buttons. One problem is that Qiaotou is a relatively small village and its production is carried out by small, family-owned businesses. What does this tell you about the comparative advantage versus the external
Evaluate the costs and benefits of tariffs, their welfare effects, and winners and losers of tariff policies. LO.1
Discuss what export subsidies and agricultural subsidies are and explain how they affect trade in agriculture in the United States and the European Union. LO.1
Recognize the effect of voluntary export restraints (VERs) on both importing and exporting countries and describe how the welfare effects of these VERs compare with tariff and quota policies. LO.1
Home’s demand curve for books is D = 50 - 10P.Its supply curve is S = 10 + 10P.Derive and graph Home’s import demand schedule. What would the price of books be in the absence of trade? LO.1
Suppose Foreign had been a much smaller country with domestic demand.D* = 8 - 2P, S* = 4 + 2P.(Notice that this implies the Foreign price of books in the absence of trade would have been the same as in Problem 2).Recalculate the free trade equilibrium and the effects of a 1.5 specific tariff by
Return to the example of Problem 2. Starting from free trade, assume that Foreign offers exporters a subsidy of 1.5 per unit. Calculate the effects on the price in each country and on welfare, both of individual groups and of the economy as a whole in both countries. LO.1
Suppose workers involved in manufacturing are paid less than all other workers in the economy. What would be the effect on the real income distribution within the economy if there were a substantial tariff levied on manufactured goods? LO.1

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