var imagesLarge = ",krugmanwellsmacro4-numbered_fig-ch5_fig_4,krugmanwellsmacro4-numbered_fig-ch5_fig_5,krugmanwellsmacro4-numbered_fig-ch5_fig_6,krugmanwellsmacro4-numbered_fig-ch5_fig_8,krugmanwellsmacro4-numbered_fig-ch5_fig_10,krugmanwellsmacro4-numbered_fig-ch5_fig_12,,,,,"; var imagesXlarge = ",krugmanwellsmacro4-numbered_fig-ch5_fig_1,krugmanwellsmacro4-numbered_fig-ch5_fig_2,krugmanwellsmacro4-numbered_fig-ch5_fig_3,krugmanwellsmacro4-numbered_tab-ch5_tab_2,krugmanwellsmacro4-unnumbered_fig-ch5_un_01,krugmanwellsmacro4-numbered_fig-ch5_fig_7,krugmanwellsmacro4-numbered_fig-ch5_fig_9,krugmanwellsmacro4-numbered_fig-ch5_fig_11,,,,,,,"; if ($('#krugmanwellsmacro4-ch5-list-15').length) { var $this = $('#krugmanwellsmacro4-ch5-list-15'); $this.attr('data-block_type','numbered-roman_bold'); } /*** CYU answers ***/ xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-1-1a'] = "
To determine comparative advantage, we must compare the two countries’ opportunity costs for a given good. Take the opportunity cost of 1 ton of corn in terms of bicycles. In China, the opportunity cost of 1 bicycle is 0.01 ton of corn; so the opportunity cost of 1 ton of corn is 1/0.01 bicycles = 100 bicycles. The United States has the comparative advantage in corn since its opportunity cost in terms of bicycles is 50, a smaller number. Similarly, the opportunity cost in the United States of 1 bicycle in terms of corn is 1/50 ton of corn = 0.02 ton of corn. This is greater than 0.01, the Chinese opportunity cost of 1 bicycle in terms of corn, implying that China has a comparative advantage in bicycles.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-1-1b'] = "Given that the United States can produce 200,000 bicycles if no corn is produced, it can produce 200,000 bicycles × 0.02 ton of corn/bicycle = 4,000 tons of corn when no bicycles are produced. Likewise, if China can produce 3,000 tons of corn if no bicycles are produced, it can produce 3,000 tons of corn × 100 bicycles/ton of corn = 300,000 bicycles if no corn is produced. These points determine the vertical and horizontal intercepts of the U.S. and Chinese production possibility frontiers, as shown in the accompanying diagram.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-1-1c'] = "The diagram shows the production and consumption points of the two countries. Each country is clearly better off with international trade because each now consumes a bundle of the two goods that lies outside its own production possibility frontier, indicating that these bundles were unattainable in autarky.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-1-2a'] = "According to the Heckscher–Ohlin model, this pattern of trade occurs because the United States has a relatively larger endowment of factors of production, such as human capital and physical capital, that are suited to the production of movies, but France has a relatively larger endowment of factors of production suited to wine-making, such as vineyards and the human capital of vintners.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-1-2b'] = "According to the Heckscher–Ohlin model, this pattern of trade occurs because the United States has a relatively larger endowment of factors of production, such as human and physical capital, that are suited to making machinery, but Brazil has a relatively larger endowment of factors of production suited to shoe-making, such as unskilled labor and leather.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-2-1a'] = "In the accompanying diagram, PA is the U.S. price of grapes in autarky and PW is the world price of grapes under international trade. With trade, U.S. consumers pay a price of PW for grapes and consume quantity QD, U.S. grape producers produce quantity QS, and the difference, QD − QS, represents imports of Mexican grapes. As a consequence of the strike by truckers, imports are halted, the price paid by American consumers rises to the autarky price, PA, and U.S. consumption falls to the autarky quantity, QA.
Before the strike, U.S. consumers enjoyed consumer surplus equal to areas W + X + Z. After the strike, their consumer surplus shrinks to W. So consumers are worse off, losing consumer surplus represented by X + Z.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-2-1b'] = "Before the strike, U.S. producers had producer surplus equal to the area Y. After the strike, their producer surplus increases to Y + X. So U.S. producers are better off, gaining producer surplus represented by X.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-2-1c'] = "U.S. total surplus falls as a result of the strike by an amount represented by area Z, the loss in consumer surplus that does not accrue to producers.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-2-2a'] = "Mexican grape producers are worse off because they lose sales of exported grapes to the United States, and Mexican grape pickers are worse off because they lose the wages that were associated with the lost sales. The lower demand for Mexican grapes caused by the strike implies that the price Mexican consumers pay for grapes falls, making them better off. U.S. grape pickers are better off because their wages increase as a result of the increase of QA − QS in U.S. sales.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-3-1a'] = "If the tariff is $0.50, the price paid by domestic consumers for a pound of imported butter is $0.50 + $0.50 = $1.00, the same price as a pound of domestic butter. Imported butter will no longer have a price advantage over domestic butter, imports will cease, and domestic producers will capture all the feasible sales to domestic consumers, selling amount QA in the accompanying figure. If the tariff is $0.25, the price paid by domestic consumers for a pound of imported butter is $0.50 + $0.25 = $0.75, $0.25 cheaper than a pound of domestic butter. American butter producers will gain sales in the amount of Q2 − Q1 as a result of the $0.25 tariff. But this is smaller than the amount they would have gained under the $0.50 tariff, the amount QA − Q1.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-3-1b'] = "As long as the tariff is at least $0.50, increasing it more has no effect. At a tariff of $0.50, all imports are effectively blocked.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-3-2a'] = "All imports are effectively blocked at a tariff of $0.50. So such a tariff corresponds to an import quota of 0.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-4-1a'] = "There are many fewer businesses that use steel as an input than there are consumers who buy sugar or clothing. So it will be easier for such businesses to communicate and coordinate among themselves to lobby against tariffs than it will be for consumers. In addition, each business will perceive that the cost of a steel tariff is quite costly to its profits, but an individual consumer is either unaware of or perceives little loss from tariffs on sugar or clothing. The tariffs were indeed lifted at the end of 2003.
"; xBookUtils.showAnswers['krugmanwellsmacro4-cyu-5-4-2a'] = "Countries are often tempted to protect domestic industries by claiming that an import poses a quality, health, or environmental danger to domestic consumers. A WTO official should examine whether domestic producers are subject to the same stringency in the application of quality, health, or environmental regulations as foreign producers. If they are, then it is more likely that the regulations are for legitimate, non–trade protection purposes; if they are not, then it is more likely that the regulations are intended as trade protection measures.
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