国际贸易双语教案问题答案Pugel_14_SG_AKEY (19)

CHAPTER 2 THE BASIC THEORY USING DEMAND AND SUPPLYObjectives of the ChapterChapter 2 sets up supply and demand for our basic trade model. It enables us to determine precisely the equilibrium relative price and equilibrium quantities traded, and the distribution of the gains from trade. Simply put, international trade occurs if Country A’s consumers find that they can purchase a good at a lower price in Country B than at home, or if Country J’s producers find that they can sell their goods at a higher price in Country K than at home. Abstracting from any barriers to trade, the international price of a good reaches equilibrium when aggregate world demand equals aggregate world supply, or when the quantity of imports demanded equals the quantity of exports supplied.Although both the importers of the good and the exporters of the good gain from the transaction (why else would they trade voluntarily?), it is not true that everyone gains or that all the winners enjoy equal gains from trade. Some groups will actually lose from the opening of trade: the consumers of the good in the export country (who now have to compete with the rest of the world’s buyers) and the domestic producers of the good in the import country (who now have to compete with the rest of the wo rld’s producers). On net, however, we can show that the losses that these groups experience will be smaller than the gains enjoyed by their counterparts: home producers of the exported good and home consumers of the imported good. The division of the gains from trade between buyers and sellers will depend largely on how far the international price is from the pre-trade (or “autarkic”) price of the good. The farther the trade price is from one’s own pre-trade price, the larger one’s share of the gains.After studying Chapter 2, you should understand:1. The basic theory of supply and demand and the concept of market equilibrium.2. The construction of the demand for imports curve and the supply of exports curve.3. The determination of the equilibrium world price with trade.4. The consumer surplus and producer surplus, and how they reflect the gains from trade.5. The “o ne-dollar, one-vote” concept.6. The relationship between price elasticities and gains from trade.Important ConceptsArbitrage:Buying something at a low price in one market and reselling it at a higher price in another market.Consumer surplus:The difference between what a person would be willing to pay and what she actually has to pay to buy a certain amount of a good. It is the area below thedemand curve and above the price level.Producer surplus:The difference between what a producer is paid for a certain amount of a good and the lowest price she requires in order to supply that amount. It is the areaabove the supply curve and below the price level.Warm-up QuestionsTrue or False? Explain.1. T / F When trade opens up, all consumers are made better off.2. T / F In the simple trade model, countries with identical pre-trade prices for a good have noincentive to trade in that good.3. T / F If one producer is made better off by trade, then all producers in the same country mustbe made better off by trade.4. T / F At the equilibrium trade price between two countries, the excess supply of the good inone country must equal the excess demand for the good in the other country.5. T / F There ain’t no such thing as a free lunch, but there is such a thing as free trade.Multiple Choice1. After trade has opened up, the gains that trade brings to consumers of the imported goods are, inabsolute value,A. larger than the losses to domestic producers of that good.B. smaller than the losses to domestic producers of that good.C. exactly equal to the losses to domestic producers of that good.D. immeasurable.2. Which of the following is not likely to promote free trade in lumber between countries?A. Pre-trade lumber prices that are equal across countries.B. Profit-seeking lumber arbitrageurs.C. Lumber supply differences between countries.D. Lumber demand differences between countries.3. Consumer surplus isA. what consumers must pay the government to produce goods.B. the quantity of goods consumers can get below the market price.C. the difference between the market price and the maximum price consumers would pay for agood.D. the revenues transferred from buyers to sellers.4. After trade, the distribution of income in a country changes asA. import-competing producers lose while producers of the exportable good gain.B. the nation as a whole gains while individuals lose.C. consumers lose while producers gain.D. income flows from consumers to producers.5.If export supply is less price elastic than import demand, then the A. importing country will not want to trade. B. exporting country will not want to trade.C. exporting country will receive the largest share of the gains from trade.D. importing country will receive the largest share of the gains from trade.Problems1. Consider the graphs of the domestic markets for bread in the hypothetical countries of Leinster and Saxony.Figure 2.1a. What is the pre-trade equilibrium price of bread in each country?b. Is there a reason for trade in bread between Leinster and Saxony?LeinsterSaxonyBread in millions of loavesBread in millions of loavesP r i c e o f b r e a d (t e l e p h o n e s p e r l o a f )c. Construct the appropriate import demand and ex port supply curves, assuming that “theworld” consists of only these two countries.d. What is the equilibrium trade price of bread in Leinster? In Saxony?e. On the domestic market graphs, show that, at the equilibrium trade price, the quantity ofbread imported from Saxony equals the quantity of bread imported into Leinster.f. On the domestic market graphs, indicate the changes in consumer and producer welfare thatresult from trade opening in each country.g. Which groups in the two countries will be happy with free trade in bread between thecountries? Which groups will wish free trade would be banned?h. On your “international” graph with the export and import curves, indicate the net gains fromtrade for each country.i. Which country gains the larger share from trade? Why? (Hint: Look at the elasticities of thetrade curves you derived.)j. Indicate the losses each country would incur if trade in bread were eliminated.2. Assume that, for some unknown reason, both the domestic supply of and the domestic demandfor bread in Leinster become very elastic, while the curves for Saxony are unchanged. Whatimpact would this have on the international price, the quantities traded, and the net gains fromtrade for Leinster and Saxony?3. Assume that American lumber companies make 52 billion board-feet of lumber each year, ofwhich 10 billion are exported and 42 billion are sold in the United States. The average price is 30 cents per board-foot. If lumber exports were banned by law, production (now for the domesticmarket only) would be 48 billion board-feet, and the price would drop to 25 cents per board-foot.How much producer surplus would U.S. lumber producers lose each year as a result of the export ban?4. Suppose that opening up trade would make our nation export beans and import jeans. Let’s saythat it raises the price of beans from 0.20 jeans/bushel to 0.25 jeans/bushel (so that jeans drop in price from 5 bushels of beans to 4 bushels per pair).a. What are the welfare effects of trade on bean consumers, bean producers, jeans consumers,and jeans producers?b. Describe how to measure the net national gain or loss (measured in units of real goods) fromthe opening of trade.Discussion Topics1. What ways of measuring welfare can you think of besides the “one-dollar, one-vote” metric?2. Is profiting from arbitrage in commodities a good or a bad thing for the arbitrageur? For theeconomy?3. What might motivate trade between two countries, other than price differentials?4. Using the ideas of consumer and producer surplus, try to formulate an argument for avoiding a(trade) war between two countries.。

CHAPTER 8ANALYSIS OF A TARIFFObjectives of the ChapterThis chapter analyzes the advantages and disadvantages of tariffs. Except for some recognized exceptional cases, there is a rare consensus among economists that freer trade is better than protectionism. As illustrated in this chapter, economic analysis has consistently demonstrated that there are usually net gains from freer trade for the nation as well as for the world. A tariff helps import-substituting producers, and the government collects some tariff revenue (import taxes); however, consumers of the good are unambiguously harmed.Whether or not a tariff will result in a net gain for the importing country will depend on the size of that country. If the country levying the tariff is small (meaning that its actions cannot affect the world price of the good on which the tariff is levied), then the loss to consumers is larger than the sum of gains to producers and to the government. On the other hand, if the country is large (meaning that, by limiting imports, it can force down the world price of the good), then levying a tariff may result in a net gain for the country. This will depend upon the portion of the government’s revenues that are, in essence, extracted from foreign producers versus the size of the country’s deadweight losses from the tariff. In any case, the world as a whole always loses from the imposition of a tariff.After studying Chapter 8 you should be able to identify1. the advantages and disadvantages of a tariff.2. how a tariff lowers the welfare of the world as a whole.3. ad valorem tariffs versus specific tariffs.4. the effective rate of protection.5. how demand-supply analysis can be used to assess the gains and losses of a tariff, using bothgraphical and tabular expositions.Important ConceptsAd valorem tariff: A tariff that is set as a percentage of a value of a good when it reachesthe importing country.Consumption effect: The welfare loss to consumers in the importing nation that correspondsto their being forced to cut their total purchases of a good as a result ofthe tariff.Deadweight loss: Consumer loss from a tariff that accrues to neither the government norproducers.Effective rate of protection: The percentage by which the entire set of a nation’s trade barriersraises the indu stry’s value added per unit of output. (This term isabbreviated as e.r.p.)Nationally optimal tariff: A tariff set at the rate that maximizes the gains for a large country (atthe expense of foreign countries). Technically, the optimal rate, as afraction of the price paid to foreigners, equals the reciprocal of theelasticity of supply of a country’s imports.Price-taking countries: “Small” countries that cannot affect the world price of the goods andservices they trade. In these countries, the import supply curve isinfinitely elastic.Production effect: The cost of shifting to more expensive domestic production from animport-competing sector that is protected by a tariff on foreign goods. Prohibitive tariff: A tariff set so high that it reduces imports to zero.Specific tariff: A tariff stipulated as a money amount per physical unit of theimport.World Trade Organization: An international organization of most of the world’s countries; itoversees governmental policies regarding international trade. The chiefpurposes of the WTO are to liberalize trade and limit unfair exportpolicies such as subsidies.Warm-up QuestionsTrue or False? Explain.1. T / F Free trade is always a better policy than a tariff.2. T / F An advantage of a specific tariff is that its protective value keeps pace with increases inthe price of the imported good.3. T / F While a tariff may be nationally optimal, it is not globally optimal.4. T / F Ad valorem is just another way of saying ad nauseam.5. T / F A tariff always results in losses to a country’s consumers in excess of the gains to itsproducers.Multiple Choice1. The optimal tariff for a small (price-taking) countryA. is zero.B. is a prohibitive tariff.C. is unambiguously positive.D. increases as t hat country’s elasticity of demand increases.2. An optimal tariff that yields a net national welfare gain requires thatA. t he nation be a “price taker.”B. there be no loss of consumer surplus.C. trading partner nations not be injured by the tariff.D. the nation has monopsony power in the international market.3.The imposition of a tariffA. generates revenue which is paid entirely by foreigners.B. always increases the domestic price in the exporting country.C. reduces the welfare of a “small” importing country relative to free trade.D. is always welfare-increasing.4.The effective rate of protection of an industry is A. always larger than the optimal tariff.B. a measure of the jobs gained by the economy imposing a tariff.C. more or less than the nominal tariff rate, depending on the domestic output’s share in GDP.D. more or less than the nominal tariff rate, depending on the tariffs on inputs. 5.The imposition of an import tariff by a large nation A. increases the n ation’s welfare. B. r educes the nation’s welfare.C. l eaves the nation’s welfare unchanged.D. allows for any of the above possibilities.Problems1.Consider a case in which the large country, Leinster, imposes a tariff on Saxon bread. This tariff reduces the volume of bread traded from 80 million loaves to 40 million loaves, and causes the “world” price to fall to 0.23 telephones per loaf of bread.Figure 8.1SaxonyLeinsterBread in millions of loavesP r i c e o f b r e a d (t e l e p h o n e s p e r l o a f )f )Bread in millions of loavesUsing the domestic market graphs, illustrate the impact of the tariff on the following: a. Bread consumer surplus in Leinster and in Saxony.b. Bread producer surplus in Leinster and in Saxony.c. National welfare in Leinster and in Saxony.d. “World” welfare.2. Assume the U.S. imposes a $1.50 tariff on each six-pack of imported beer. (All beers are thesame quality and all are sold in six-packs.) Careful studies show the tariff has these effects:a. Calculate the net national U.S. gain (or loss) from the tariff using the “one-dollar, one-vote”metric.b. Suppose that $2.00 of purchased inputs go into each six-pack of domestic beer, with orwithout the tariff; the rest of the price is the industry’s value added. What is the effective rateof protection given to the beer industry? (There are no tariffs on barley, hops, mascots foradvertising, or other purchased inputs.)3. Suppose that the United States currently imports baseball bats without tariff, with the resultsshown in the first column of numbers below. Congress is thinking of imposing a tariff of $35 per bat and has asked you to estimate the gains and losses to different groups. You find that the $35 tariff would yield the prices and quantities shown in the right-hand column. In the followingquestions, explain your answers, and give numerical results if possible.a. What is the gain or loss to U.S. bat buyers from the tariff?b. What is the gain or loss to U.S. bat producers from the tariff?c. What is the government revenue from the tariff?d. What is the net gain or loss for the U.S. as a whole?e. What is the net gain or loss for other countries?f. What is the gain or loss for the world as a whole?4. Consider a scenario in which the effective rate of protection for Pakistani clothing producersis -30 percent. You are asked to advise the Pakistani government on their trade policy towards the clothing industry. Interpret the meaning of the -30 percent effective rate of protection and suggest the tariff changes that would most benefit the Pakistani clothing industry.5. The production of heating devices requires the use of copper wire. Suppose that 10 percent of thetotal value of a heating device is comprised of the value of copper wire. German firms thatproduce heating devices import the copper wire that is used in production. If the German tariff on imported heating devices is 12 percent and the German tariff on imported copper wire is 10percent, what is the effective rate of protection for the German heating device industry?6. Look back at the bread import and export curves that you derived for our hypothetical world inProblem 1 of Chapter Two. Does Leinster’s demand for bread imports appear to be m ore or less elastic than Saxony’s supply of bread exports? What does that tell you about the likely impact of a tariff on imported bread on Leinsterian welfare?Discussion Topics1. Economic theory says the imposition of a tariff will reduce a small country’s welfare. Why is it,then, that so many small countries do impose tariffs?2. A tariff increases producer welfare at the expense of consumer welfare and is nevereconomically “efficient.” But is a tariff ever “equitable?”。

CHAPTER 16PAYMENTS AMONG NATIONSObjectives of the ChapterThis chapter looks at how international exchanges of goods, services, and financial assets are recorded in official statistics. Two sets of statistics are presented: the balance of payments accounts and the international investment position accounts. The trade, current, financial, and official settlements accounts are specialized accounts within the balance of payments accounts, and are derived by grouping international transactions according to common characteristics.Although the details of international accounting may seem a bit dry, there are two important economic uses for the accounts. The first use is in determining the relationship between the saving of a country’s residents and the amount of capital formation going on in that country: S = I d + I f = CA. So, for example, if country A is running a current account deficit we know that it is saving less than it is investing at home (S<I d) and that other countries are investing in country A (I f < 0). Second, if there is a large difference between the value of the current account and the value of the financial account, it means that the country’s monetary authorities must be actively engaging in the buying or selling of official reserve assets.After studying Chapter 16 you should know1. what information the balance of payments accounts record.2. the distinction between debit and credit entries.3. t he meaning and scope of various accounts’ balances.4. why the current account balance equals the difference between national product and nationalexpenditure.5. the concept of an overall balance of payments surplus or deficit.6. the meaning and usefulness of the balance on international investment.7. the historical status of the U.S. as net creditor or debtor with respect to the rest of the world.Important ConceptsBalance of payments:The systematic set of accounts that records all economic transactionsbetween residents of a country and the rest of the world during a givenperiod of time.Financial account:Records the values of financial assets purchased and sold abroad byprivate residents (not monetary authorities) of the home country. Afinancial account surplus indicates that, on net, financial capital hasflowed into the country.Capital inflow: Either an increase in foreign assets in the nation, such as when aforeigner purchases a U.S. stock; or a reduction in the nation’s assetsabroad, such as when an American sells a foreign stock.Capital outflow:Either an increase in the nation’s assets abroad, such as when anAmerican purchases a foreign asset; or a reduction in foreign assets inthe nation, such as when a foreigner sells his American assets. Current account:Records the values of goods and services sold and purchased abroad,plus net interest and other factor payments and net unilateral transfersand gifts. A current account surplus shows that a country has positivenet foreign investment.International investment Measures a nation’s stock of foreign assets and liabilities at a point position: in time.Net foreign investment: The part of national saving invested abroad instead of being channeledinto domestic capital formation: (S = I d + I f). It is also the differencebetween purchases of financial assets (lending) abroad and asset salesto foreign ers (borrowing), that is, a country’s accumulation of netclaims on other countries.Official settlements balance: Also calle d the “official balance,” this is t he sum of the currentaccount balance plus the private financial account balance. Animbalance in the official balance must be paid for through officialreserves transactions.Official international The changes in domestic official reserve assets and in reserves transactions: domestic official liquid liabilities to foreign officials. It is derivedby dividing private transactions from official “accommodative”transactions in the balance of payments accounts.Reserve assets: Assets held by a nation’s monetary authorities as a kind of “war chest”to enable them to intervene in the foreign exchange market if andwhen they decide to do so. Reserve assets include key foreigncurrencies, gold, official reserves at the IMF, and holdings of SpecialDrawing Rights (SDRs). Recently, China has accumulated a very largestock of dollar-denominated reserve assets.Merchandise trade balance:The value of goods exported (credits) minus the value of goodsimported (debits). The value of exported goods and services minusimported goods and services is often referred to as “the trade balance.”Warm-up QuestionsTrue or False? Explain.1. T / F A negative net foreign investment on this year’s balance of payments accounts means thecountry is a net debtor.2. T / F A nation running a current account surplus is accumulating foreign assets.3. T / F Because the balance of payments accounts must balance, sub-accounts like the financialaccount must balance, too.4. T / F If GDP, consumption, and domestic investment are all constant, an increase ingovernment spending will cause the country to run a trade deficit.5. T / F The “statistical discrepancy” component of the balance of payments accounts is a refugefor scoundrels.Multiple Choice1. If a U.S. firm borrows one billion dollars in Mexican pesos from Citibank’s Mexico branch anduses the money to build a factory in Mexico, the transition will enter the U.S. balance ofpayments as a credit onA. short-term private capital inflow and a debit on direct investment payments.B. long-term private capital inflow and a debit on long-term private capital outflow.C. long-term private capital inflow and a debit on direct investment.D. short-term private capital inflow and a debit on short-term private capital outflow.2. An economic transaction is recorded in the balance of payments as a credit if it leads toA. a payment to foreigners.B. the receipt of a payment from foreigners.C. a decrease in foreign exchange reserves.D. neither an inflow nor an outflow of value.3. Which of the following is recorded as a debit item in the U.S. balance of payments accounts?A. An Italian firm pays $5 million in dividends to the holders of its stock in the U.S.B. The French Club Med hires four American scuba diving instructors for its new resort on theItalian island of Sardinia.C. Toyota builds a factory in the U.S. to manufacture automobiles.D. Remittances from Cambodian immigrants in the U.S. flow to their relatives in Thailand’srefugee centers.4. Borrowing from abroad is aA. capital import and therefore a debit item.B. capital export and therefore a credit item.C. capital import and therefore a credit item.D. capital export and therefore a debit item.5. If a country’s net foreign investment amounts to –$15 billion, this implies an equivalentA. current account deficit.B. current account surplus.C. trade balance surplus.D. overall balance deficit.Problems1. Number crunchers in Leinster have been working hard to come up with information about flowsof funds between Leinster and Saxony. Suppose they have derived the following data for thecurrent year in Leinster. (All numbers are in billions of the Leinster currency, the Leinster lira, which is abbreviated as Ll.)National product Ll 100.00Consumption Ll 60.00Government purchases Ll 15.00Formation of Leinster Capital Ll 15.00Exports to Saxony Ll 20.00a. What is the value of goods and services imported from Saxony?b. Is Leinster, on net, lending to or borrowing from Saxony?2. Assume the following is complete and accurate information about international transactions ofthe United States.▪Donald Trump buys a cottage in France for $1,008.▪American manufacturers export $998 in baseball bats.▪Profits from Costa Rican coffee plantations owned by residents of Seattle equal $1,002.▪Interest paid on a U.S. Treasury bond to a Japanese citizen is $1,004.▪An Irish worker in San Francisco sends $996 to her mother in Dublin.▪ A German tourist spends $1,006 on a fling in Las Vegas.▪ A Greek billionaire buys a hot dog stand in New York City for $1,006.▪Martha Stewart imports $1,002 of wine from France.a. Place each transaction in the proper place in the balance of payments accounts.b. Find the trade balance, the current account balance, and net private capital flows.c. Based on that information, was the Federal Reserve buying or selling foreign exchange?How much?d. Can you tell from the data whether there is a floating or a fixed exchange rate?3. Which of the following transactions would contribute to a U.S. current account surplus?a. McDonald’s makes a barter trade w ith Russia, providing hamburgers for the Kremlin inexchange for potatoes from Russian state farms.b. The U.S. borrows $100 million from Kuwait to buy $100 million of Kuwaiti oil this year.c. The U.S. sells Israel $100 million in automatic weapons, paid for with $100 million in bankdeposits.d. The U.S. government makes a gift of $100 million to the people of Rwanda to pay foremergency hospital care.e. The U.S. government sells $100 million in long-term bonds to Japan, is paid with bankdeposits in Tokyo, and promises to repay the loan in five years.f. American travel agents buy Olympic Games tickets from a Chinese scalper, paying withdollars (cash).4. The following information for 2008 was collected by Avalon’s Chief International Accou ntant:▪Sales of computers to Saxony $1,200▪Purchases of summer homes in Saxony $500▪Purchases of bread from Saxony $1,400▪Computer consulting performed in Leinster $1,600▪Vacations in Leinster $200▪Purchases of stock in Leinster Telecommunications Ltd. $800▪Sales of Avalon Computer Corporation bonds in Leinster $100Unfortunately, the accountant died of boredom, leaving you to figure out these numbers.a. What was Avalon’s merchandise trade balance and current account balance in 2008?b. Was Avalon an international lender or borrower in 2008?c. Was Avalon a net creditor or a net debtor in 2008?5. In the 1980s, there was a great deal of talk about the “twin deficits” experienced by the UnitedStates: the federal government was running a budget deficit at the same time that the nation was running a trade deficit. Are these two deficits always evil twins?Discussion Topics1. Is running a trade surplus always good?2. Should a country run an official balance surplus rather than an official balance deficit?3. Persistent trade deficits have made the United States the largest debtor country in the world.What are the costs (and/or benefits) of being in this position?。

CHAPTER 18FORWARD EXCHANGE AND INTERNATIONALFINANCIAL INVESTMENTObjectives of the ChapterThis chapter extends the discussion of exchange rates begun in Chapter 17 by explicitly introducing the aspect of future exchange rate changes and the risk posed by rate fluctuations. Contracts to exchange currencies in the future, at a price determined in the present, are called forward contracts. These contracts can be used both by people wishing to avoid uncertainty and by people who are willing to take on risk by betting on the future movements of exchange rates.This chapter will be of particular interest to those wishing to predict the future and to those hoping to make a quick buck off their studies. We show that, in theory, the actions of agents speculating in exchange markets can cause the forward exchange rate to approximate what the average market participant thinks the spot exchange rate will be in the future. Furthermore, our models tell us that the actions of more risk-averse investment types should produce covered interest parity, in which the ratio of today’s forward rate to today’s spot rate equals the ratio of (1 + the home country’s interest rate) to (1+ the for eign country’s interest rate). Then, if the forward rate does accurately predict the future spot rate, we have uncovered interest parity, in which the interest rate ratio equals the ratio of the expected future spot rate to today’s spot rate.After reading Chapter 18 you should be able to1. differentiate between spot exchange rates and forward exchange rates.2. understand the use of forward rates to hedge and to speculate.3. explain the relationship between the forward exchange rate and the expected future spot rate.4. explain the relationship between the spot rate, the forward exchange rate, and international interestrates.Important ConceptsCovered interest arbitrage:Buying a country’s currency spot and selling it forward to make anet profit off the combination of higher interest rates in thecountry and/or any forward premium on its currency.Covered interest parity:When the forward rate on a nation's currency exceeds the spot rateby the same percentage that its interest rate is lower than the othercountry’s interest rate.Covered international investment:When the exchange rate at which anticipated foreign investmentreturns will be redeemed is locked in today through a forwardcontract. The agent is protected from exchange rate risk when“covered.”Currency futures:Contracts to buy or sell a foreign currency on a specific date in thefuture at a price set today. In this sense, futures are exactly likeforward exchange contracts. The difference lies in their form.While forward contracts are tailored to the needs of the customerin terms of amount of funds, due-date of contract, and so on,futures contracts have standardized denominations and due dates.As a consequence, they can be traded in organized markets such asthe Chicago Mercantile Exchange. Almost anyone with someup-front funds can enter into a futures contract; only very largefirms get forward contracts from their banks.Currency options: A currency options contract gives parties the right (but not therequirement) to buy/sell foreign exchange in the future at a priceset today. If someone purchases a “call option,” she buys the rightto obtain the currency at the “strike price” at a given date in thefuture. A person purchasing a “put option” buys the right to sellthe currency at the “strike price.”A person expecting a foreigncurrency to become pricier in the future might buy a call option; aperson expecting the currency to fall in value might buy a putoption.Exchange rate risk:When the value of an economic agent’s income, wealth, or networth changes as exchange rates change unpredictably in thefuture.Future spot rate:The spot exchange rate that will end up prevailing at some date inthe future.Hedging:The act of exactly matching assets and liabilities, such as foreigncurrencies, so as to avoid exchange rate risk.Long position: A net asset position (e.g., owning a foreign currency).Short position: A net liability position (e.g., owing a foreign currency). Speculation: Deliberately assuming a net asset (long) position or net liability(short) position in an asset, such as a foreign currency, in the hopeof profiting from price changes.Uncovered interest parity: When the expected rate of appreciation of a currency equals theamount by which its interest rate is lower than the other country’sinterest rate.Uncovered international investment: When the exchange rate at which anticipated foreign investmentreturns will be redeemed is not determined until the trade occurs atthe future spot rate. The agent is exposed to exchange rate riskwhen “uncovered.”Warm-up QuestionsTrue or False? Explain.1. T / F The forward exchange rate is the same as the future spot rate.2. T / F Speculating means taking only a short position, not a long position.3. T / F If German interest rates are higher than American interest rates, we would expect theeuro to be at a forward discount relative to the dollar.4. T / F Hedgehogs are afraid of risk.5. T / F If a speculator believes that the future spot rate on the British pound will be higher thanthe current forward rate, the speculator will buy the pound forward.Multiple Choice1. Suppose an American speculator anticipates the spot rate on the yen in 180 days will be higherthan today’s 180-day forward rate on yen ($0.0072). Which of these investments is best if she is correct?A. Sell one million yen today in the forward market for delivery in 180 days.B. Buy one million yen today in the forward market for delivery in 180 days.C. Buy dollars today in the spot market.D. Buy dollars today in the forward market for delivery in 180 days.2. Covered interest parity is a condition whereA. the forward value of a currency will tend to exceed its spot value by the same percentage asits interest rate is lower than foreign interest rates.B. the spot value will tend to exceed its forward value by the same percentage as the domesticinterest rate is lower than foreign interest rates.C. the domestic and foreign interest rates are equalized.D. the spot and forward rates are equalized.3. Suppose you are an established speculator with an excellent reputation, but currently withoutliquid funds. You believe the dollar is going to appreciate. What would you do?A. Borrow dollars in the U.S. and sell the dollars in the spot exchange market.B. Buy foreign (non-dollar) currencies forward.C. Sell foreign (non-dollar) currencies forward.D. Borrow yen in Japan and sell them on the spot market.4. If today’s spot rate on the Briti sh pound is $2 and the 30-day forward rate on the pound is$2.10 (ignoring any interest earnings or costs), then a speculator whoA. purchased 100 British pounds forward today can make $10 profit in 30 days.B. purchased 100 British pounds spot today can make $10 profit 30 days from now.C. sold 100 British pounds forward today can make £10 profit 30 days from now.D. sold 100 British pounds spot today can make £10 profit 30 days from now.E. none of the above.5. Assume the interest rate in the U.S. exceeds Japan’s by 4 percentage points on an annual basis. Ifyou were a speculator, you would take a long position in yen ifA. the value of the yen is expected to increase by two percentage points on an annual basis.B. the value of the yen is expected to fall by four percentage points.C. the value of the yen is expected to fall by less than four percentage points.D. the value of the dollar is expected to fall by more than four percentage points.Problems1. Imagine you are a student who also works in your parents’ bakery in Saxony. You have justshipped a load of bread to Leinster and are supposed to be paid Ll 10,000 in 60 days. Youobserve the forward rate on the Leinster lira is Ss 95/Ll. You also guess that the spot rate mayvary between Ss 85/ Ll and Ss 105/ Ll over the next 60 days.a. If you decide to lock in the exchange rate with a forward contract, how many Saxon scudoswill you receive in 60 days?b. If, instead, you decide to wait to sell the Leinster lira at the spot rate that will prevail in 60days, how much could you gain compared to the assured return in (a)? How much could youlose compared to the assured return in (a)?c. What will determine which option you choose?2. (Sometime later…) You have graduated to become a Saxon economist, and the Finance Ministerof Saxony has asked you to consider the following information:▪The annual interest rate on 180-day government bonds in Saxony is 8 percent. The interest rate on similar bonds in Leinster is 6 percent.▪In today’s exchange markets, the spot rate is Ss 100/ Ll; the 180-day forward rate is Ss 110/ Ll.a. Will funds be more likely to flow from Saxony to Leinster or vice versa?b. What will be the impact of these funds flows on the spot and forward exchange rates?c. Assuming rigidity in the forward rate and in interest rates, at what spot exchange rate willinvestors be indifferent regarding whether they put their funds in Leinster or in Saxony? 3. (Much later…) Despite the Finance Minister’s protests, you decide to become a foreignexchange speculator in your spare time. You observe that the 180-day forward rate on theLeinster lira is Ss100/ Ll. Based on all the information you have collected, you expect that in180 days the lira will have appreciated to Ss 120/ Ll.a. Based on your expectations, how would you use the forward foreign exchange market to tryto earn a profit in Saxon scudos?b. What will determine whether or not you actually make a profit?c. If there are many speculators in Leinster and Saxony, all acting on their expectations, whatdoes this tell you about the relationship between the forward rate and the future spot rate?4. You have retired from government service in Saxony and now spend your time thinking deepeconomic thoughts for your own amusement. You notice the following information in thenewspaper:▪Interest on one-year Saxon government bonds = 8 percent▪Interest on one-year Leinster government bonds = 6 percent▪Current spot rate on the Leinster lira = Ss 100/ LlFurthermore, during your deep thinking, you have formed the expectation that the spot rate on the Leinster lira is going to rise to 102 Ss/ Ll one year from now.a. Does uncovered interest parity hold?b. If not, at what current spot rate would the expected uncovered differential be zero?c. How might the current spot rate be driven to this new level?5. Consider the followi ng information from today’s edition of the Greed Gazette (you may assumethat all data is of the same periodicity):▪U.K. interest rate = 7 percent▪U.S. interest rate = 4 percent▪Spot exchange rate = $2/£▪Forward exchange rate = $1.95/£a. If you have $100 to play with, explain how can you make the most money based on thisinformation. In particular, should you invest in the U.S. or in the U.K.?b. At what forward rate do you earn zero profits and have no monetary incentive to play thisgame?Discussion Topics1. “Speculator” is often used as a pejorative term. Why do you think that is? Can a speculator everincrease global welfare in the process of earning profits?2. Could the purchase of a foreign equity (stock) be motivated as much by expectations of exchangerate changes as by expectations of changes in the value of the equity?3. If all economic agents became risk-lovers, would there still be a need for forward contracts inforeign exchange?。

CHAPTER 7GROWTH AND TRADEObjectives of the ChapterIn this chapter, the Heckscher-Ohlin model of international trade is extended to include growth in the endowment of a country’s f actors of production and technological improvements. The impact of economic growth on international trade will depend on whether the growth is balanced in all goods or is biased toward one good, and on whether the country experiencing growth is large or small.An interesting result emerges from the interaction of growth and international trade: g rowth in one’s own country may not be an unmitigated blessing. First, as the Rybczynski theorem shows, growth in one sector can cause production in non-growing sectors to decline. Second, under certain conditions, export-biased growth may lead to an adverse terms of trade effect, and national well-being may actually decline. After reading Chapter 7 you should be able to1. show how trade patterns are influenced by the source of economic growth.2. show how economic growth can change the production patterns of a country.3. discuss how growth affects the terms of trade and the well-being of the country experiencing it.4. relate the rate of growth in a country to its openness to international trade.Important ConceptsDutch disease: A famous example of the phenomenon described by the Rybczynskitheorem. The term was used to describe a problem experienced bythe Netherlands, in which the discovery of new natural gas fieldswas thought to have led to a decline in the production ofmanufactured goods.Immiserizing growth: In a large trading country which is heavily dependent on trade,growth in the export sector may lead to a deterioration in its terms oftrade large enough to reduce the country’s welfare.Product cycle hypothesis: Predicts that as the technology of a product becomes morestandardized and static, production shifts from high-skilled laborcountries to countries abundant in low-cost, low-skilled labor. Rybczynski theorem: In a two-product world with constant prices, the growth of one factorof production results in a decrease in the output of the product thatdoes not use this factor intensively.Small/large country assumption: A small country has no impact on international commodity prices; alarge country can have an impact on international prices.Warm-up QuestionsTrue or False? Explain.1. T / F A country which is “large” may improve its terms of trade by investing in the growth ofthe import-competing sector rather than in the export sector.2. T / F Growth in a small country, by definition, will leave the terms of trade unchanged.3. T / F Adolescence is an example of “immiserizing growth.”4. T / F Growth in a country’s factors of production always makes the country more self-sufficient and less reliant on international trade.5. T / F A country that isolates itself from the rest of the world may doom its citizens to a lowerstandard of living.Multiple Choice1. “Rapid accumulation of new capital in a fast-growing trading country can make the countryimport more natural res ources.” This statement is implied by theA. Heckscher-Ohlin theorem.B. Stolper-Samuelson theorem.C. Rybczynski theorem.D. factor price equalization theorem.2. According to trade theory, if a nation has a comparative advantage in a capital-intensivelyproduced good, and the rate of growth of capital is greater than the rate of growth of other inputs(e.g., labor), the pattern of growth which results will beA. import-replacing.B. neutral as between capital-intensive and other products.C. export-expanding.D. none of the above.3. A necessary condition for immiserizing growth is that theA. c ountry’s growth is biased toward the export sector.B. f oreign demand for the country’s export is price elastic.C. c ountry’s consumption pref erences are heavily biased in favor of the export good.D. l evel of trade is not a significant part of the country’s economy.4. The Heckscher-Ohlin theory successfully explains theA. product-innovation process and the location of industries in countries other than the UnitedStates.B. rising importance of a country both exporting and importing the same product.C. rising trade between the United States and Canada because both are similar in factorendowments.D. trade patterns between industrialized countries and the developing countries, which differ infactor endowments.5.Which of the following is most likely to undergo a product cycle?A. Rice.B. Television sets.C. Crude oil.D. Minerals. Problems1.Back to our countries of Leinster and Saxony. PPCs for each of the countries are drawn on the following graph with the free trade price of 0.25 telephones/loaf indicated. (From this question forward, you should consider Leinster a “large country” and Saxony a “small country.”)Figure 7.1LeinsterT e l e p h o n e sSuppose that Saxony discovers a way of irrigating previously arid land.a. What would you expect to happen to the volume of trade between Leinster and Saxony?b. What would happen to the level of economic well-being in Saxony as a result of the growth itexperienced after the expansion of irrigation?Suppose, instead, that a plague wipes out 20 percent of Leinster’s labor force.c. What would you expect to happen to the volume of trade between Leinster and Saxony?d. What would happen to the level of economic well-being in Leinster after the populationdecline?2. Assume that Canada exports land-intensive wheat and imports cloth that uses unskilled laborintensively, even though Canada does make some cloth at home. If a major breakthrough inbiotechnology doubles Canada’s ability to grow wheat, and if the extra wheat supply lowers the world price of wheat (in yards of cloth per bushel of wheat),a. will this set of events make Canada better off or worse off as a nation?b. will this set of events make the rest of the world better off or worse off?c. will these events raise or lower the real wage rate of unskilled Canadian laborers?If, instead, the rest of the world’s labor supply doubles while i ts land supply remains the same,d. will this event and its effects make Canada better off or worse off as a nation?3. The trade minister for Saxony is a nationalist, a mercantilist, an isolationist, and nearly everyother kind of “ist” you can think of. She has sugge sted that Saxony close its doors to telephone imports from Leinster. Focusing on the role of technology in economic growth, try to talk her out of her anti-import stance.4. Suppose Kazakhstan is land- and unskilled-labor abundant and capital- and skilled-labor scarce.a. According to the Heckscher-Ohlin model, what type of goods will Kazakhstan export, andwhat type will it import?b. Suppose that Kazakhstan wants to achieve “import replacing” growth. What change in itsendowments would achieve this growth? If Kazakhstan were large, what would be the effecton its terms of trade?5. Some oil executives are urging Congress to open up the wildlife preserves in the Arctic region ofAlaska to oil exploration. If, indeed, huge new oil reserves are discovered there,a. what is likely to be the impact on American imports of oil?b. what is likely to be the impact on national welfare?c. could the United States ult imately suffer from “the Dutch disease?”d. in broad terms, what other costs might the country face?6. For decades the U.S. government has tried to boost the country’s savings rate. Since the U.S. isan exporter of capital-intensive goods, explain how increased saving may affect economicgrowth.Discussion Topics1. If growth can make a country worse off, why is it allowed to happen?2. Are the developed countries or the developing countries more prone to experiencingimmiserizing growth?3. What “new” goods in the U.S. do you foresee going through the product cycle in the near future?What countries do you think will ultimately end up producing these goods?。

CHAPTER 5 WHO GAINS AND WHO LOSES FROM TRADE?Objectives of the ChapterIn this chapter, we see how trade patterns predicted by the Heckscher-Ohlin model may lead to changes in income distribution. International trade divides society into gainers from trade and losers from trade as a result of changes in relative commodity prices. The Stolper-Samuelson theorem explains that in the short run, factors employed to produce the rising-price good gain, while factors employed to produce the falling-price good lose. In the long run, when factors are mobile between industries, the factor used intensively in producing the rising-price good gains whether or not it is actually employed in that industry. Similarly, the factor used intensively in producing the falling-price good loses.The factor price equalization theorem uses both the Heckscher-Ohlin model and the Stolper-Samuelson theorem. It assumes that the more abundant factor works more in the export industry, while the scarcer factor is bound to work more in the import-competing industry; furthermore, it assumes that factors producing the rising-price good have rising incomes in the long run. As a result, scarce (expensive) labor in one country sees its wage fall, while abundant (cheap) labor in another country sees its wage rise. Consequently, wages in the two countries converge.After studying Chapter 5 you should know1. how income distribution relates to international trade through the Stolper-Samuelson theorem.2. the assumptions and conclusions of the factor-price equalization theorem.3. the Leontief Paradox and other empirical evidence on Heckscher-Ohlin.Important ConceptsFactor price equalization theorem: Under certain assumptions, free trade will equalize not onlycommodity prices between countries but also factor prices, so thatall laborers will earn the same real wage rate and all units of landwill earn the same real rental return in both countries, regardlessof the factor supplies or the demand patterns in the two countries. Factor specialization:The degree of concentration of a factor in the production of acommodity or group of commodities.Neutral factor: A factor that accounts for the same share of the value of output inall commodity lines.Magnification effect:The principle that a factor’s price c hanges by a greater percentagethan the change in the commodity price that caused it.Stolper-Samuelson theorem: Under certain assumptions, a change in product pricesunambiguously raises the return to the factor used intensively inthe rising-price industry and lowers the return to the factor usedintensively in the falling-price industry, regardless of which goodsthe owners of the factors prefer to consume.Warm-up QuestionsTrue or False? Explain.1. T / F The Leontief Paradox may be resolved by using more disaggregated definitions offactors of production.2. T / F The Stolper-Samuelson theorem says that trade will cause the owners of the abundantfactor to receive lower real incomes, while the owners of the scarce factor receive higherreal incomes.3. T / F Nobel prizes are not given to dead economists.4. T / F Factor prices will not be equalized by trade if technologies are not the same in allcountries.5. T / F Unskilled workers in the United States should be more opposed to free trade than skilledworkers in the United States.Multiple Choice1. Studies of U.S. trade and its effects on employment of U.S. labor show that, on average,A. trade has no effect on total employment.B. replacing imports (e.g., through protection from foreign competition) saves (or creates) morejobs than an equivalent expansion of exports.C. expanding exports creates more jobs than an equivalent amount of import substitution.D. foreign competition has clearly raised the unemployment rate.2. After trade opens up, in the short run,A. all groups tied to the declining sectors lose.B. only factors used more intensively in the declining sectors lose.C. only factors used less intensively in the declining sectors lose.D. only the most abundant factor in the country loses.3. Mexico is an unskilled-labor abundant country, while the United States is a skilled-laborabundant country. With the opening of trade, you would expect that, in the long run, wages forunskilled workersA. decline in both countries.B. decline in the United States and rise in Mexico.C. rise in the United States and decline in Mexico.D. rise in both countries.4. Which of the following statements is false?A. Consumption patterns do not matter for welfare gains or losses of neutral factors.B. Consumption patterns do affect the size of the gains or losses to all factors.C. Consumption patterns do not affect the direction of gains or losses for the most specializedfactors.D. Consumption patterns do not matter for the welfare gains or losses of a nation as a whole.5. Factor price equalization will not hold ifA. factors are immobile between sectors of the economy.B. factors have different productivities in different countries.C. countries put up barriers to free trade.D. all of the above.Problems1. Recall our hypothetical trade model: Leinster is a labor-abundant country and Saxony is aland-abundant country; telephones are labor-intensive goods and bread is a land-intensive good.Assume that free trade prevails between the two countries.a. What happens to wages earned by workers in Leinster in the short run? In the long run?b. What happens to wages earned by workers in Saxony in the short run? In the long run?c. According to the factor-price equalization theorem, will labor wages in Leinster equal landrents in Leinster, or will Leinster wages equal Saxony wages?2. Given the implications of trade models for factor prices, how would you explain an observationthat, in 2006, the hourly compensation for manufacturing workers in Canada was $25.74 while in Portugal it was only $7.65?3. Consider an economy producing capital-intensive computers and land-intensive wheat. Labor isemployed to produce both goods. If free trade raises the price of computers relative to wheat,who would gain and who would lose under each of the following scenarios?a. Factors are perfectly immobile between the two sectors.b. Factors are perfectly mobile between the two sectors.4. You are given the following cost data for France, where they have nothing but capital and laborand make nothing but bread and wine.a. Is bread-making more capital-intensive than wine-making or vice versa? Explain.b. Suppose trade opens and the price of wine rises while the price of bread falls. If capital andlabor were completely immobile between bread-making and wine-making, who in Francewould gain from the shift in prices? Who would lose? (Consider the four groups of breadcapitalists, bread laborers, wine capitalists, and wine laborers.)c. Which group of consumers will rejoice with the winemakers in the situation presented inQuestion 4b? Which group of consumers will commiserate with the breadmakers?5. Suppose that a new isolationist government in Leinster decides to shut off the country’s importsof land-intensive bread, preferring to produce food rather than making labor-intensive telephones for export. After trade is shut off, bread becomes 14 percent more expensive relative totelephones (i.e., telephones become 14 percent cheaper relative to bread).a. Over the long run, how much, and in what direction, will isolation change Leinsterianlaborers’ real wage incomes?b. Over the long run, how much, and in what direction, will isolation change Leinsterianlandlords’ real rental income?Discussion Topics1. What do you think would happen to factor prices internationally if an energy crisis tripled thecost of shipping goods around the globe?2. Policymakers today are concerned about retraining unemployed workers. Try to make a case forsuch programs as a means of increasing public support for free trade.。

K e y Chapter1I. Answer my questions1. International trade is business whose activities involve the crossing of nationalborders. It includes not only international trade and foreign manufacturing but also encompasses the growing services industry in areas such as transportation, tourism,banking, advertising, construction, retailing, wholesaling, and mass communications.It includes all business transactions that involve two or more countries. Such business relationship may be private or governmental.2. Sales expansion, resource acquisition and diversification of sales and supplies.3. To gain profit.4. To seej out foreign markets and procurement.5. There are four major forms which are the following:Merchandise exports and Imports, Service Exports and Imports, Investment andMultinational Enterprise.6. It is the account which is a summary statement of the flow of all international economic and financial transactions between one nation (eg.the United States ) and the rest of the world over some period of time, usually one year.7. Merchandise Exporting and Importing.8. Yes. There are great differences between them.1) direct investment takes place when control follows the investment. It usually means high commitment of capital, personnel, and technology abroad. It aims at gaining of foreign resources and foreign markets. Direct investment may often get higher foreign sales than exporting. And sometimes it involves two or more parties.2) While portfolio investments are not under control. And they are used primarily for financial purposes. Treasures of companies, for example, routinely more funds from one country to another to get a higher yield on short term investments.9. MNE is the abbreviation of the multinational enterprise. Its synonyms are NNC (the multinational corporation) and TNC (transnational corporation).10. Examples are travel, transport, fee, royalties, dividends and interest.11. The choice of forms is influenced by the objective being pursued and the environments in which the company must operate.12. It is limited by the number of people interested in a firm’s products and services and by customers’ capacity to make purchase.13. This is because at an early stage of international involvement these operations usually take the least commitment and least risk of a firm’s resources.14. Royalties means the payment for use of assets from abroad, such as for trademarks patens, copyrights, or other expertise under contract known as licencing agreements.Royalties are also paid franchising.15. It is a way of doing business in which one party (the franchiser) the use of a trademark that is an essential asset for the franchisers’ business.II Match each one on the left with its correct meaning on the right1. J2.A3.E4.B5.C6.D7.I8.G9.F 10.HIII Translate the following terms and phrases into Chinese1 购买力11 经济复苏；恢复2 潜在销售量12 经济衰退3 加价，涨价13 间接投资4 国内市场14 有形货物5 制成品15 有形进出口6 边际利润16 收入及支出；岁入及岁出7 市场占有率17 超额能力8 贸易歧视18 贸易中间人（商）；经纪人9 时机选择19 全部包建的工程承包方式10 经销周期20 许可证协定IV Translate the following into English1. Trade is often the ‘engine’ of growth. However oversimplified this metaphor may be, it does serve to underline the importance of foreign trade in the process of growth. A healthy expansion of exports may not always be sufficient condition for rapid and sustained growth, but a strong positive association between the two is clearly undeniable. Trade expansion contributes to economic growth in many ways.Among them are the benefits of specialization; the favorable effects of international competition on domestic economic efficiency; the increased capacity to pay for the imports required in development and more generally the stimulus to investment.2. International trade is the exchange of goods and services produced in one country for goods and services produced in another country. In addition to visible trade, which involves the import and export of goods and merchandise, there is also invisible trade, which involves the exchange of services between nations. Nations such as Greece and Norway have large maritime fleets and provide transportation service. This is a kind of invisible trade. Invisible trade can be as important to some nations as the export of raw materials or commodities is to others. In both cases, the nations earn the money to buy necessities.3. There exist different ways of conducting international business. Exclusive sale means the seller gives the overseas client the exclusive right of selling a particular product in a designated area within a specified period of time. In this kind of business transaction, the product is bought by the exclusive seller and therefore he should sellthe product by himself, assuming sole responsibilities for his profit and loss. Exclusive sale is different from agency where only commission is involved. And difference exists between general contract and exclusive sales because the exclusive seller enjoys exclusive right in a particular area.4. There is no country in the world that can produce all the products it needs. Thus countries join in international division of labor for effective production and reproduction. Sometimes a country can buy goods and services from abroad on a barter basis. Barter means doing business by exchanging goods of one sort for goods of another sort without using money. Barter trade itself is not enough to meat a country’s import needs. But as a form of international trade, it is still attractive in developing countries where foreign exchange is in short supply and inflow of foreign funds is far from sufficient to meet their obligations in external trade.Chapter2I. Answer the following questions(Omited)II. Filling the blanks with the suitable words in the text:1.meeting/satisfying;2.agent, foreign/overseas;mission;4.own;5.setting;6.patent;7.profits;8.outlets;9.joint, venture; 10.subsidiaryIII.Translate the followings into English1). Economic activity began with the cavemen, who was economicallyself-sufficient. He did his own hunting, found his own shelter, and provided for his own needs. As primitive populations grew and developed, the principle of division of labor evolved. One person was more able to perform some activity than another, and therefore each person concentrated on what he did best. While one hunted, another fished. The hunter then traded his surplus to the fisherman, and each benefited from the variety of diet.In today’s complex economic world, neither individuals nor nations areself-sufficient nations are self-sufficient. Nations have utilized different economic resources; people have developed different skills. This is the foundation of international trade and economic activities.Foreign trade, the exchange of goods between nations, takes place for many reasons. The first, as mentioned above, is that no nation has all of the commodities than it needs. Raw materials are scattered around the world. Large deposits of copper are mined in Peru and Zaire, diamonds are mined in South Africa, and petroleum is recovered in Middle East. Countries that do not have these resources within their own boundaries must buy from countries that export them.Foreign trade also occurs because a country often does not have enough of a particular item to meet its needs. Although the United States is a major producer of sugar, it consumes more than it can produce internally and thus must import sugar. Third, one nation can sell some items at a lower cost than other countries. Japanhas been able to export large quantities of radios and television sets because it can produce them more efficiently than other countries. It is cheaper for the United States to buy these from Japan than to produce them domestically.Finally, foreign trade takes place because of innovation or style. Even though the United States produces more automobiles than any other country, it still imports largequantities of autos from Germany, Japan and Sweden, primarily because there is a market for them in the United States.2). The different kinds of trade nations engaged in are varied and complex, a mixture of visible and invisible trade. Most nations are more dependent on exports than on any other activity. The earnings from exports pay for the imports that they need and want. A nation’s balance of payment is a record of these complex transactions. By reflecting all of these transactions in monetary terms , a nation is able to combine the income it receives, for example, from exports, tourists expenditures, and immigrant remittances. This combined incomes is then spent on such items as manufactured goods from other countries, travel for its citizens to other countries, and the hiring of construction engineers.Chapter3I. Translate the followings from Chinese into English:1 terms of payment2 written form of contract3 execution of the contract4 sales contract5 purchase confirmation6 terms of transaction7 trading partners 8 the setting up of a contract9 trade agreement 10 consignment contract11 the contract proper 12 extension of the contract13 the contracting parties 14 special clause15 general terms and conditionsII. Answer the following questions in English:1 A contract is an agreement which sets forth bind obligations of the relevant parties. And any part that fails to fulfill his contractual obligations may be sued and forced to make compensation.2 There are two parties of business contract negotiations: oral and written. The former refers to direct discussions abroad; written negotiations often begin with enquiries made by the buyers.3 A written contract is generally prepared and signed as the proof of the agreement and as the basis for its execution. A sales or purchase confirmation is less detailedthan a contract, covering only the essential terms of the transaction. It is usually usedfor smaller deals or between familiar trade partners.4 The setting up of a contract is similar to that of a trade agreement or any othertype of formal agreements. It generally contains: 1) the title. The type of the contractis indicated in the title; 2) the contract proper. It is the main part of a contract; 3) the signature of the contracting parties indicating their status as the seller or the buyer; 4)the stipulations on the back of the contract and are equally binding upon the contracting parties.5 It generally contains the time of shipment, the mode of payment described inaddition to an exact description of the goods including the quantity, quality, specifications, packing methods, insurance, commodity inspection, claims, arbitrationand force majeure, etc.III. Translate the following into Chinese:合同是在双方达成协议的基础上制定的，而协议又是双方进行商务谈判的结果。

CHAPTER 12TRADE BLOCS AND TRADE BLOCKSObjectives of the ChapterPrevious chapters have emphasized import barriers that are imposed mainly to restrict imports from all countries. This chapter, however, examines import barriers meant to discriminate between countries, taxing goods and services (and assets) from some countries more than others. Some export barriers may also be imposed to direct the flow of merchandise and assets to some countries more than to others. Chapter 12 discusses different forms of economic integration (including trade blocs) and their economic ramifications. Trade blocs have become increasingly important in recent years. Specifically, the European Union and the North American Free Trade Area have revived interest in the study of economic integration and trade blocs.After studying Chapter 12 you should be able to identify1. the different forms of economic integration.2. the economic implications of trade blocs and full unions.3. how trade blocs can lead to trade creation or trade diversion.4. the conditions under which trade blocs and full unions are likely to succeed or fail.5. why economic integration tends to be more successful among developed countries than developingcountries.6. the impact of trade embargoes on both the target country and the imposing country.Important ConceptsCommon market:An international union that goes beyond a customs union by alsoallowing for the free movement of labor and capital (factor flows)among member nations.Customs union: A union in which members remove all barriers to trade amongthemselves and adopt a common set of external barriers, therebyeliminating the need for customs inspection at internal borders (e.g.,MERCOSUR today, and the EEC from 1957-1992).Economic sanctions:Discriminatory restrictions or complete bans on economic exchange,designed to punish the target country or countries.Economic union: A union that extends a common market by harmonizing the monetaryand fiscal policies of the member nations as well.Embargoes (boycotts):Complete bans on economic exchange. These may fail for eithereconomic or political reasons.Free-trade area:An area in which members remove trade barriers among themselves butkeep their separate national barriers against trade with non-members.Rules of origin: A version of domestic-content regulations in which products arecertified to have been produced within a free-trade area (and so arepermitted to trade without barriers in that area). Without such rules, anon-member Country X may circumvent Country Y’s high external tariffby exporting its good to Y’s free-trade partner, Country Z.Trade blocs:Forms of economic integration whereby members remove explicit tradebarriers among themselves, but keep national barriers to the flow oflabor and capital and their fiscal and monetary autonomy. Trade blocsare exemplified mainly by free-trade areas and custom unions. Nearlyhalf of all world trade occurs within trade blocs.Trade creation:The increase in trade volume caused by union with a lower cost (moreefficient) supplier within the trade bloc.Trade diversion: The volume of trade shifted from a lower-cost (more efficient) supplieroutside the trade union to a higher-cost (less efficient) supplier withinthe union.Warm-up QuestionsTrue or False? Explain.1. T / F Trade discrimination is bad in the sense that separate deals with separate nations maydestroy many of the gains from global markets.2. T / F The formation of a customs union will definitely raise welfare.3. T / F The less elastic the import demand curve, the greater the gains from a customs union.4. T / F Customs unions are more likely to be successful among developed countries than amongless-developed countries.5. T / F An export embargo will backfire if the embargoing country has an inelastic exportsupply curve while the target country has an elastic import demand curve.Multiple Choice1. If all member nations of a customs union are fully employed before and after the formation of theunion, then (assuming that trade diversion does not dominate)A. the welfare of the member nations will decrease.B. the welfare of the member nations will increase but world welfare will decrease.C. the welfare of the member nations and the world will increase.D. no member nations will have time to organize good soccer matches.2. Trade sanctions areA. usually successful as long as the imposing countries are developed countries.B. more likely to be successful when the sanctioning countries have high trade elasticities.C. more likely to be successful when the sanctioning countries have low trade elasticities.D. successful mostly due to world cooperation, not trade elasticities.3. Which of the following is not correct?A. The formation of a common market allows the free movement of factors of productionbetween member nations.B. The 1992 EC common market overturned Italian Pasta Protection Laws, which protectedhigher-cost producers.C. A common market coordinates monetary and fiscal policies of members.D. Common markets have been more successful among rich countries than among poorcountries.4. The United States was able to initiate most of the trade embargoes in the last four decades mainlybecauseA. the U.S. is a superpower.B. the U.S. has high demand and supply elasticities in a significant number of products and can,therefore, influence trade.C. other countries cannot do without U.S. trade.D. embargoes are usually successful.5. If, after the creation of the EU, the British have an incentive to purchase less efficiently producedIrish cheese rather than importing inexpensive cheese from New Zealand, this probably showsA. trade creation.B. trade diversion.C. government interference in the marketplace.D. common sense.Problems1. If Saxony and Leinster currently have no barriers to free trade between them, are they a free tradearea, a customs union, a common market, or an economic union? Explain.2. Suppose that the United States currently imports 1,000 pairs of shoes from South Korea at $20per pair. With a 50 percent tariff, the consumer price in the United States is $30 per pair. Theprice of shoes in Mexico is $25 per pair. If the U.S. and Mexico were to reach a free tradeagreement, the United States would import 1,200 pairs of shoes from Mexico and none fromSouth Korea. Draw a graph to analyze possible welfare changes (in dollars) to Americanconsumers, the U.S. government, and the United States as a whole.3. Explorers from Saxony have discovered a third country called Avalon in our hypothetical world.After a rest stop and a bite to eat, they notice that telephones in Avalon are much less expensive than they are in their own country. Upon their return, the explorers relay this information toSaxony’s Minister of Trade, who has been thinking about setting up a customs union withLeinster. Further exploration has revealed to the Trade Minister the following additionalinformation:autarky (pre-trade) price of a telephone in Saxony = 5 loaves of breadautarky (pre-trade) price of a telephone in Leinster = 1 2/3 loaves of breadautarky (pre-trade) price of a telephone in Avalon = 1 loaf of breadUse this information to advise the Trade Minister whether a Saxony-Leinster customs unionwould be trade-creating or trade-diverting, assuming that:a. the initial Saxon tariff on all imported telephones was a specific tariff of 4 1/3 loaves ofbread per telephone.b. the initial Saxon tariff on all imported telephones was a specific tariff of 1 loaf of bread pertelephone.4. Suppose signing the North American Free Trade Agreement (NAFTA) changes U.S. importquantities as follows (you may assume there is no effect on U.S. imports from Canada):Does this evidence suggest a net world welfare gain or welfare loss from NAFTA?5. Our happy hypothetical world is not as happy as it had seemed: the Saxon government hasreceived information about widespread human rights abuses in Leinster. It decides to embargo the export of bread to Leinster as punishment.a. Would a Saxon embargo of the sale of bread to Leinster be economically effective?b. Would the embargo be a successful political weapon?Discussion Topics1. If Japan were to join a free trade area with one other country, which country do you think itwould be?2. Do you think the proliferation of trade blocs will increase or decrease tensions among thecountries of the world?3. Do you think the American embargo on Cuba has been an economic success? Has it been apolitical success?4. When the Soviet Union invaded Afghanistan in 1979, the United States placed a grain embargoon the U.S.S.R. Discuss the economic and non-economic implications of using food as a“weapon.”5. Should NAFTA be expanded to include all of South America too?。

CHAPTER 15MULTINATIONALS AND MIGRATION:INTERNATIONAL FACTOR MOVEMENTSObjectives of the ChapterA necessary condition for world output to be maximized is the free mobility of factors of production to the places where their productivity—and so, presumably, income—are the highest. This is relatively uncomplicated within nations. Factor movements between nations are an entirely different matter. In fact, many countries wrestle with whether to encourage factor migration or to restrict it. As we have seen with international trade in goods, we will find that not everyone benefits from the international migration of factors of production.Chapter 15 explores the motives for, and implications of, the movement of capital and labor across national borders. It is important to remember, however, that the economic analysis of these flows must be supplemented by sociological and political considerations in order to understand the different treatment of internal versus international factor migration.After studying Chapter 15, you should be able to1. describe the historical and geographical patterns of foreign direct investment.2. explain why a firm might choose a policy of FDI in a host country over one of exporting goodsproduced in the home country.3. analyze the welfare effects of FDI in both the home and host countries, and describe how thechoice to subsidize or tax FDI depends on considerations of market power, externalities, andpolitics.4. illustrate and explain the welfare effects of labor migration on both the sending country and thereceiving country.5. discuss the positive and negative externalities generated by international migration.6. relate the economic and political outcomes of immigration for the emigrants and for the residentsof the receiving country.Important ConceptsBrain drain:The emigration, mainly from developing countries, of highly skilledand educated people to higher-wage industrialized countries.FDI:Foreign direct investment. A flow of lending to, or purchase ofownership in, a new or existing foreign enterprise. To qualify as FDI,the investment must represent at least 10% of the value of the firm,and the investor is presumed to have the ability to exert some controlover the firm.Firm-specific advantages:Managerial, technical, and marketing skills and patents that accrue to aparticular firm and that help it overcome the inherent nativeadvantages of local rival firms.MNE:Multinational enterprise. A firm that owns and controls enterprises inmore than one foreign country. The parent company is based in thehome-country source for the FDI and has one or more foreign branchesor subsidiaries. Unlike a foreign direct investor, an MNE also tends toprovide brand names, marketing strategies, or management practices. Transfer pricing:The price set on a component moving between units of an MNE.Creative transfer pricing can reduce the parent company’s corporateprofits taxes by overstating the cost paid for components by theMNE’s unit in a high-tax country.Warm-up QuestionsTrue or False? Explain.1. T / F Even though FDI raises some political concerns for host countries, these countries maystill be better off subsidizing FDI rather than taxing it.2. T / F FDI is essentially a flow of financial capital between countries.3. T / F There is an economic gain to workers who stay at home while others emigrate.4. T / F The public finance effect of immigrant workers on the receiving country will dependupon the skill level of those workers.5. T / F “Brain drain” is what you experience after t aking a midterm exam in Economics.Multiple Choice1. When FDI brings positive technological externalities with it, a case can be made forA. the home country subsidizing outward-bound FDI.B. both the home country and the host country taxing FDI.C. both the home country and the host country subsidizing FDI.D. the host country subsidizing inward-bound FDI.2. In order to evade a higher tax burden, a multinational enterprise may engage in transfer pricing,in which the subsidiary in the high-tax country willA. be overcharged when buying from a less-taxed foreign branch.B. be overpaid when selling to a less-taxed foreign branch.C. be charged above-market rates on loans it makes to the less-taxed branch.D. borrow from the less-taxed branch at below-market rates.3. In the absence of externalities, the countries sending large numbers of workers abroadA. l ose only if their emigrants’ gains are excluded from net welfare calculations.B. l ose with or without consideration of the emigrants’ stake.C. lose because per capita income falls.D. g ain, even when their emigrants’ gains are left out of the net welfare calculation.4. Which group definitely loses from international migration of labor?A. The migrants.B. The migrants’ new employers in th e receiving country.C. The migrants’ old employers in the sending country.D. The migrants’ fellow workers who did not emigrate.5. The welfare (supply and demand) analysis of immigrationA. assumes that factor price equalization is not achieved through trade alone.B. implicitly assumes factor prices will eventually be equalized through trade alone.C. considers the factor price equalization theorem to be irrelevant.D. acknowledges that commodity price equalization will not be achieved through immigrationalone.Problems1. Some Leinster telephone executives want to set up telephone manufacturing plants in Saxony.a. Why might they prefer to do this rather than just exporting telephones to Saxony?b. What are key factors in deciding whether they lend funds to an existing Saxon telephone firmor engage in FDI and set up their own plant in Saxony?c. What arguments could the Leinsterian government use to either encourage or discourage aflow of FDI out of Leinster?d. What arguments could the Saxon government use to either encourage or discourage a flow of FDI into Saxony? 2.What would you expect to happen to foreign direct investment if there were a substantial decrease in transportation costs worldwide?3. The labor markets in Leinster and Saxony look like the following graphs, with each country’swages expressed in a currency called the scudo, which is abbreviated as S S .Figure 15.3a. What is the prevailing wage in each country, in the absence of immigration?b. If workers can freely move between countries, which country is likely to be the source of theemigrants? What impact will immigration have on wages in both the sending country and the receiving country? 2000 (thousands) (thousands)400 W a g e (S S p e r h o u r )c. Now, suppose that pressure from natives causes the Saxon government to close the border toany immigration from Leinster, reducing the inflow of workers to zero (and perhaps causingsome earlier immigrants to leave). What would be the effect of this action oni. wages in the two countries?ii. the welfare of workers in the two countries?iii. the welfare of employers in the two countries?iv. overall “world” welfare?4. In 1999, farmers in California’s Central Valley lobbied for an expansion of the “guest worker”program (which allows workers to enter the country temporarily) in order to provide moreagricultural labor for the area. How would the effects of that type of program compare toincreased immigration quotas or softer enforcement of the state’s borders?5. Early on, the text suggested that trade between countries is a substitute for factor mobilitybetween countries. How does this chapter confirm or contradict that assertion?Discussion Topics1. Could FDI be thought of as an inflow of both capital and skilled labor?2. Why did the United States attract more foreign direct investment than any other country in the1980s? Why has the amount of FDI in China increased so rapidly?3. Would you expect to see international labor migration increase as barriers to the movement ofgoods between countries proliferate?4. Discuss the costs and benefits of immigration policy that gives preference to refugees fleeing waror persecution.5. Does FDI in manufacturing (which predominates in China) have different economic or politicalimplications than FDI in services (which predominates in other countries)?。

CHAPTER 8ANALYSIS OF A TARIFFObjectives of the ChapterThis chapter analyzes the advantages and disadvantages of tariffs. Except for some recognized exceptional cases, there is a rare consensus among economists that freer trade is better than protectionism. As illustrated in this chapter, economic analysis has consistently demonstrated that there are usually net gains from freer trade for the nation as well as for the world. A tariff helps import-substituting producers, and the government collects some tariff revenue (import taxes); however, consumers of the good are unambiguously harmed.Whether or not a tariff will result in a net gain for the importing country will depend on the size of that country. If the country levying the tariff is small (meaning that its actions cannot affect the world price of the good on which the tariff is levied), then the loss to consumers is larger than the sum of gains to producers and to the government. On the other hand, if the country is large (meaning that, by limiting imports, it can force down the world price of the good), then levying a tariff may result in a net gain for the country. This will depend upon the portion of the government’s revenues that are, in essence, extracted from foreign producers versus the size of the country’s deadweight losses from the tariff. In any case, the world as a whole always loses from the imposition of a tariff.After studying Chapter 8 you should be able to identify1. the advantages and disadvantages of a tariff.2. how a tariff lowers the welfare of the world as a whole.3. ad valorem tariffs versus specific tariffs.4. the effective rate of protection.5. how demand-supply analysis can be used to assess the gains and losses of a tariff, using bothgraphical and tabular expositions.Important ConceptsAd valorem tariff: A tariff that is set as a percentage of a value of a good when it reachesthe importing country.Consumption effect: The welfare loss to consumers in the importing nation that correspondsto their being forced to cut their total purchases of a good as a result ofthe tariff.Deadweight loss: Consumer loss from a tariff that accrues to neither the government norproducers.Effective rate of protection: The percentage by which the entire set of a nation’s trade barriersraises the indu stry’s value added per unit of output. (This term isabbreviated as e.r.p.)Nationally optimal tariff: A tariff set at the rate that maximizes the gains for a large country (atthe expense of foreign countries). Technically, the optimal rate, as afraction of the price paid to foreigners, equals the reciprocal of theelasticity of supply of a country’s imports.Price-taking countries: “Small” countries that cannot affect the world price of the goods andservices they trade. In these countries, the import supply curve isinfinitely elastic.Production effect: The cost of shifting to more expensive domestic production from animport-competing sector that is protected by a tariff on foreign goods. Prohibitive tariff: A tariff set so high that it reduces imports to zero.Specific tariff: A tariff stipulated as a money amount per physical unit of theimport.World Trade Organization: An international organization of most of the world’s countries; itoversees governmental policies regarding international trade. The chiefpurposes of the WTO are to liberalize trade and limit unfair exportpolicies such as subsidies.Warm-up QuestionsTrue or False? Explain.1. T / F Free trade is always a better policy than a tariff.2. T / F An advantage of a specific tariff is that its protective value keeps pace with increases inthe price of the imported good.3. T / F While a tariff may be nationally optimal, it is not globally optimal.4. T / F Ad valorem is just another way of saying ad nauseam.5. T / F A tariff always results in losses to a country’s consumers in excess of the gains to itsproducers.Multiple Choice1. The optimal tariff for a small (price-taking) countryA. is zero.B. is a prohibitive tariff.C. is unambiguously positive.D. increases as t hat country’s elasticity of demand increases.2. An optimal tariff that yields a net national welfare gain requires thatA. t he nation be a “price taker.”B. there be no loss of consumer surplus.C. trading partner nations not be injured by the tariff.D. the nation has monopsony power in the international market.3.The imposition of a tariffA. generates revenue which is paid entirely by foreigners.B. always increases the domestic price in the exporting country.C. reduces the welfare of a “small” importing country relative to free trade.D. is always welfare-increasing.4.The effective rate of protection of an industry is A. always larger than the optimal tariff.B. a measure of the jobs gained by the economy imposing a tariff.C. more or less than the nominal tariff rate, depending on the domestic output’s share in GDP.D. more or less than the nominal tariff rate, depending on the tariffs on inputs. 5.The imposition of an import tariff by a large nation A. increases the n ation’s welfare. B. r educes the nation’s welfare.C. l eaves the nation’s welfare unchanged.D. allows for any of the above possibilities.Problems1.Consider a case in which the large country, Leinster, imposes a tariff on Saxon bread. This tariff reduces the volume of bread traded from 80 million loaves to 40 million loaves, and causes the “world” price to fall to 0.23 telephones per loaf of bread.Figure 8.1SaxonyLeinsterBread in millions of loavesP r i c e o f b r e a d (t e l e p h o n e s p e r l o a f )f )Bread in millions of loavesUsing the domestic market graphs, illustrate the impact of the tariff on the following: a. Bread consumer surplus in Leinster and in Saxony.b. Bread producer surplus in Leinster and in Saxony.c. National welfare in Leinster and in Saxony.d. “World” welfare.2. Assume the U.S. imposes a $1.50 tariff on each six-pack of imported beer. (All beers are thesame quality and all are sold in six-packs.) Careful studies show the tariff has these effects:a. Calculate the net national U.S. gain (or loss) from the tariff using the “one-dollar, one-vote”metric.b. Suppose that $2.00 of purchased inputs go into each six-pack of domestic beer, with orwithout the tariff; the rest of the price is the industry’s value added. What is the effective rateof protection given to the beer industry? (There are no tariffs on barley, hops, mascots foradvertising, or other purchased inputs.)3. Suppose that the United States currently imports baseball bats without tariff, with the resultsshown in the first column of numbers below. Congress is thinking of imposing a tariff of $35 per bat and has asked you to estimate the gains and losses to different groups. You find that the $35 tariff would yield the prices and quantities shown in the right-hand column. In the followingquestions, explain your answers, and give numerical results if possible.a. What is the gain or loss to U.S. bat buyers from the tariff?b. What is the gain or loss to U.S. bat producers from the tariff?c. What is the government revenue from the tariff?d. What is the net gain or loss for the U.S. as a whole?e. What is the net gain or loss for other countries?f. What is the gain or loss for the world as a whole?4. Consider a scenario in which the effective rate of protection for Pakistani clothing producersis -30 percent. You are asked to advise the Pakistani government on their trade policy towards the clothing industry. Interpret the meaning of the -30 percent effective rate of protection and suggest the tariff changes that would most benefit the Pakistani clothing industry.5. The production of heating devices requires the use of copper wire. Suppose that 10 percent of thetotal value of a heating device is comprised of the value of copper wire. German firms thatproduce heating devices import the copper wire that is used in production. If the German tariff on imported heating devices is 12 percent and the German tariff on imported copper wire is 10percent, what is the effective rate of protection for the German heating device industry?6. Look back at the bread import and export curves that you derived for our hypothetical world inProblem 1 of Chapter Two. Does Leinster’s demand for bread imports appear to be m ore or less elastic than Saxony’s supply of bread exports? What does that tell you about the likely impact of a tariff on imported bread on Leinsterian welfare?Discussion Topics1. Economic theory says the imposition of a tariff will reduce a small country’s welfare. Why is it,then, that so many small countries do impose tariffs?2. A tariff increases producer welfare at the expense of consumer welfare and is nevereconomically “efficient.” But is a tariff ever “equitable?”。