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DeVry University, Chicago ECON ECON312 chapter 6 1)“The best indicator of the importance of a nation’s world trade is the ratio of its exports plus imports to the size of its domestic output
DeVry University, Chicago
ECON ECON312
chapter 6
1)“The best indicator of the importance of a nation’s world trade is the ratio of its exports plus imports to the size of its domestic output.” Critically evaluate.
- Suppose all American international trade suddenly ceased. What would be the consequences domestically? Internationally?
- Explain the principle of comparative advantage in nontechnical terms.
- The countries of Macrostan and Micrastan have the production possibilities tables for sheep and hogs shown in the tables below. Without trade Macro would produce at Alternative D and Micra would also produce Alternative D. Note that the costs of producing sheep and hogs are constant in both countries.
Macrostan’s Production Possibilities Table Product Alternative
(lbs) A B C D E F
|
Sheep 25 |
20 15 10 5 |
0 |
|
Hogs 0 |
5 10 15 20 |
25 |
Micrastan’s Production Possibilities Table Product Alternative
(lbs) A B C D E F
|
Sheep 20 |
16 12 8 |
4 |
0 |
|
Hogs 0 |
3 6 9 |
12 |
15 |
-
- In Macro, the cost of producing:
5 units of sheep is hog units. 1 unit of sheep is hog units.
-
- In Micra, the cost of producing:
4 units of sheep is hog units. 1 unit of sheep is hog units.
-
- Which country has the comparative advantage in sheep production and which country has the comparative advantage in hog production?
- If each nation specializes in the product where it has a comparative advantage and trades with the other, what will be the limits to the terms of trade for each sheep unit?
- If the nations do not specialize and trade but remain at alternative D in Macrostan and D in Micrastan, the combined production of Macro and Micrastan will be how many sheep and how many hogs?
- However, if the two nations specialize, the combined production of Macro and Micrastan will be how many sheep and how many hogs?
- What will be the total gain of sheep and hogs if the countries specialize and trade?
- What are the economic effects of a depreciation of the dollar on foreign exchange markets?
- Why do governments often intervene in international trade to restrict imports and expand exports?
7. What is NAFTA? What have critics and defenders said about it?
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