Pearson International 8th Edition.International Economics, (Problems Solving)
EC 239 Introduction to International Trade Instructor: Sharif F. Khan
Department of Economics Wilfrid Laurier University Winter 2010
Suggested Solutions to Assignment 2 (Optional)
Part B Short Questions
B1. Question # 1 of Ch 2 (8th ed. of the textbook) Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada’s is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia’s. Why should this be the case? We saw that not only is GDP important in explaining how much two countries trade, but also, distance is crucial. Given its remoteness, Australia faces relatively high costs of transporting imports and exports, thereby reducing the attractiveness of trade. Since Canada has a border with a large economy (the U.S.) and Australia is not near any other major economy, it makes sense that Canada would be more open and Australia more selfreliant. B2. Question # 2 of Ch 2 (8th ed. of the textbook) Mexico and Brazil have very different trading patterns. Mexico trades mainly with the United States, Brazil trades about equally with the United States and with the European Union; Mexico does much more trade relative to its GDP. Explain these differences using the gravity model. Mexico is quite close to the U.S., but it is far from the European Union (EU). So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. Mexico trades more than Brazil in part because it is so close to a major economy (the U.S.) and in part because it is a member of a free trade agreement with a large economy (NAFTA). Brazil is farther away from any large economy and is in a free trade agreement with relatively small countries.
Page 1 of 11 Pages
B3. Question # 4 of Ch 2 (8th ed. of the textbook) Over the past few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade – that is, trade among East
Department of Economics Wilfrid Laurier University Winter 2010
Suggested Solutions to Assignment 2 (Optional)
Part B Short Questions
B1. Question # 1 of Ch 2 (8th ed. of the textbook) Canada and Australia are (mainly) English-speaking countries with populations that are not too different in size (Canada’s is 60 percent larger). But Canadian trade is twice as large, relative to GDP, as Australia’s. Why should this be the case? We saw that not only is GDP important in explaining how much two countries trade, but also, distance is crucial. Given its remoteness, Australia faces relatively high costs of transporting imports and exports, thereby reducing the attractiveness of trade. Since Canada has a border with a large economy (the U.S.) and Australia is not near any other major economy, it makes sense that Canada would be more open and Australia more selfreliant. B2. Question # 2 of Ch 2 (8th ed. of the textbook) Mexico and Brazil have very different trading patterns. Mexico trades mainly with the United States, Brazil trades about equally with the United States and with the European Union; Mexico does much more trade relative to its GDP. Explain these differences using the gravity model. Mexico is quite close to the U.S., but it is far from the European Union (EU). So it makes sense that it trades largely with the U.S. Brazil is far from both, so its trade is split between the two. Mexico trades more than Brazil in part because it is so close to a major economy (the U.S.) and in part because it is a member of a free trade agreement with a large economy (NAFTA). Brazil is farther away from any large economy and is in a free trade agreement with relatively small countries.
Page 1 of 11 Pages
B3. Question # 4 of Ch 2 (8th ed. of the textbook) Over the past few decades, East Asian economies have increased their share of world GDP. Similarly, intra-East Asian trade – that is, trade among East