International Trade

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International Trade Homework #2
(Chapter 5)
Plus the Articles from the online Packet

Article: “End of Bumpy Road”
1. Based on what we have read in Ch 5, discuss the effects of Korea’s agricultural policies on trade.

2. The very last sentence mentions “real market prices”. What is meant by this?

3. How much impact do Korean agricultural policies have on the prices in question 2? Explain.

Chapter 5
1. Assume that Norway and Sweden trade with each other, with Norway exporting fish to Sweden and Sweden exporting Volvos (cars) to Norway. Illustrate the gains from trade between the two countries using the standard trade model, assuming first that tastes for the goods are the same in both countries, but the production possibilities frontiers differ: Norway has a long coast that borders on the north Atlantic, making it relatively more producing in fishing. Sweden has a greater endowment of capital, making it relatively more productive in cars. [pic]

Note how welfare in both countries increases as the two countries move from production patterns governed by domestic prices (dashed line) to production patterns governed by world prices (straight line).

2. In the trade scenario in Problem 1, due to overfishing, Norway becomes unable to catch the quantity of fish that it could in previous years. This change causes both a reduction in the potential quantity of fish that can be produced in Norway, and an increase in the relative world price for fish, Pf/Pa. A. Show how the overfishing problem can result in a decline in welfare for Norway. B. Also show how it is possible that the overfishing problem could result in an increase in welfare for Norway. [pic]

3. Japan primarily exports manufactured goods, while importing raw materials such as food and oil. Analyze the impact of Japan’s terms of trade of the following events: (no graphs needed, just write what happens) A. A war in the Middle East disrupts oil supply.

B. Korea develops the ability...
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