David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

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Review questions • Countries make the goods in which they have a comparative advantage or can produce relatively cheaply. By exploiting international differences in opportunity costs, trade leads to a pure gain. • When technology diffuses quickly to other countries, relative factor endowments are the main cause of different relative costs. Countries produce and export goods that use intensively the factors with which the country is relatively well endowed. • Intra-industry trade occurs because of scale economies and consumer demand for diversity. The gain from this trade is cost reduction and greater diversity of products. • If trade is to balance, and the forex market is to be in equilibrium, each country must have a comparative advantage in at least one good. The level of the equilibrium exchange rate offsets international differences in absolute advantage. • Although international trade can benefit the world as a whole, trade usually hurts some groups of people, unless the gainers compensate the losers. • By raising the domestic price, a tariff reduces consumption but raises domestic output. Hence imports fall. • A tariff leads to two distortions that are social costs: overproduction by domestic firms whose marginal cost exceeds the world price, and under-consumption by consumers whose marginal benefit exceeds the world price. • When a country affects the price of its imports, the world price is less than the social marginal cost of importing. This is the case for the optimal tariff. Otherwise, arguments for tariffs are usually secondbest solutions. A production subsidy or consumption tax achieves the aim at lower social cost. • Export subsidies raise domestic prices, reducing consumption but raising output and exports. They involve waste. Goods are exported for less than society's marginal production costs and for less than the marginal benefit to domestic consumers. • Tariffs and other non -tariff barriers fell a lot in the last 40 years. • Trade protection is usually costly to society. Yet governments often adopt it as an easy option politically. Review questions connect 1 (a) Why does composition of African and Asian trade differ in Table 28.5? (b) Which pattern do you expect in the UK? Why? 2 'A country with uniformly low productivity should prevent foreign competition: Discuss. 3 Wine, cars, steel sheeting: which have a high index of intra-industry trade? Why? 4 Making TVs has scale economies. Is this an argument for a tariff on TV imports? 5 To preserve its heritage, a country bans exports of works of art. (a) Is this better than an export tax? (b) Who gains and loses from the ban? (c) Does it encourage young domestic artists? 6 Common fallacies Why are these statements wrong? (a) British producers are becoming uncompetitive in everything. (b) Buy British and help Britain. 657
CHAPTER 28 International trade 7 Which is correct? (a) Now that services account for over 80 per cent of GDP in most developed countries, trade in goods cannot be the major part of international trade; (b) international trade in services is not possible; ( c) the only reason that trade in goods remains so important is that countries import goods, add a bit and then re-export them. 8 A small country has no effect on the price of any of the goods that it trades. What is the optimum tariff level on its imports? 9 How can an export subsidy, which promotes international trade, be protectionist? Illustrate your answer with a diagram. 10 Give two examples of non-tariff barriers. Draw a diagram to illustrate their effect on domestic producers and consumers. 11 A perfectly competitive industry faces domestic demand qD = 100 - p and has the industry supply curve q5 = 40 + p. (a) If the world price is 50, what is the value of net exports? (b) If the world price is 20, what is the value of net exports? ( c) In the absence of trade, what is the equilibrium domestic price? (d) With a world price of 20, suppose the government levies a tariff of 5 per unit. Calculate the value of tariff revenue and the total value of the two deadweight loss triangles. 1 2 'Large countries gain proportionately less from world trade than small countries: True or false? Why? 1 3 Usually, participating in the world economy leaves a country better off, even though there may be winners and losers within the country. (a) Will workers with skills useful to the export industries be better or worse off when a country opens up to international trade? (b) What about workers in industries whose output is now displaced by imports? (c) Could technical progress in the export industry then ever leave a country worse off? Why, or why not? 1 4 Essay question Over the last 60 years, international trade has grown much more quickly than world output. How can this occur? Can it go on indefinitely? For solutions to these questions contact your lecturer. 658
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• David Begg, Gianluigi Vernasca,
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Economics 10th Edition David Begg,
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Brief Table of Contents Preface xii
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5 Consumer choice and demand decisi
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PART FOUR Macroeconomics l 5 Introd
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PART FIVE The world economy 28 Inte
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Changes to the tenth edition After
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Guided tour In addition to illustra
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Aiding Understanding Hy the end of
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Rent ceiling in Sweden* More on pri
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13 General vs partial equilibrium:
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26 Growth and competition* Case Neo
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Cl INSTRUCTORS ... Would you like y
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Additional technology to enhance le
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Custom Publishing Solutions • cre
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Acknowledgements for the tenth edit
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Finally, special thanks to the foll
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---.. . - Introduction Economics is
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CHAPTER 1 Economics and the economy
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Learning Outcomes By the end of thi
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CHAPTER 2 Tools of economic analysi
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CHAPTER 3 Demand, supply and the ma
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4.1 The price responsiveness of dem
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4.2 Price, quantity demanded and to
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4.2 Price, quantity demanded and to
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4.4 Short run and long run simultan
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4.6 The effect of income on demand
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4.6 The effect of income on demand
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4.8 Elasticity of supply The elasti
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4.9 Who really pays the tax? S' - G
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Summary What are the effects of the
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Review questions 5 Common fallacies
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5.1 Demand by a single consumer is
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5.1 Demand by a single consumer Ill
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5.1 Demand by a single consumer QF
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5.1 Demand by a single consumer whe
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5.1 Demand by a single consumer How
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5.2 Adjustment to income changes ou
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5.3 Adjustment to price changes and
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5.3 Adjustment to price changes Thi
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5.3 Adjustment to price changes imp
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5.3 Adjustment to price changes Q '
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5.5 Complements and substitutes it
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5.6 Transfers in kind that to the s
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Review questions • The market dem
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Our theory of consumer choice assum
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APPENDIX Consumer choice with measu
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6.2 A firm's accounts A sole trader
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6.2 A firm's accounts Inventories I
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6.2 A firm's accounts Earnings When
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6.4 Corporate finance and corporate
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6.5 The firm's supply decision Tabl
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6.6 Marginal cost and marginal reve
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6. 7 Marginal cost and marginal rev
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Review questions in total cost when
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7.2 Production in the short run: di
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7.2 Production in the short run: di
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7.3 Short-run costs As you can see
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7.3 Short-run costs 60 50 SMC - 40
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7.3 Short-run costs down average co
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7.4 A firm's output decision in the
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7.6 Long-run total, marginal and av
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7. 7 Returns to scale - "O 0 DI ..
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7. 7 Returns to scale Scale economi
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7. 7 Returns to scale Table 7.10 Mi
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--1-----1 7.8 The firm's long-run o
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Summary Summary • This chapter di
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Review questions 8 Suppose that fir
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8.1 Perfect competition Perfect com
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8.2 A perfectly competitive firm's
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8.2 A perfectly competitive firm's
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8.3 Industry supply curves In the s
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8.4 Comparative statics for a compe
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.. 8.6 Profit-maximizing output for
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8.6 Profit-maximizing output for a
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8. 7 Output and price under monopol
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8. 7 Output and price under monopol
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8.8 A monopoly has no supply curve
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8.9 Monopoly and technical change f
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8.10 Natural monopoly 'ti QI 0 :I P
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Review questions • Adding at each
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9 .1 Why market structures differ D
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9 .1 Why market structures differ T
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9.3 Oligopoly and interdependence A
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9.3 Oligopoly and interdependence T
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9.4 Game theory and interdependent
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9.5 Reaction functions demand curve
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9.5 Reaction functions Deriving the
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9.5 Reaction functions Mergers and
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9.5 Reaction functions The Stackelb
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9.7 Strategic entry deterrence Inno
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9.8 Summing up Barriers at the chec
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Review questions Review questions c
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I 0.1 The firm's demand for factors
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10.2 The firm's demand for labour i
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10.3 The industry demand curve for
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10.4 The supply of labour Table 10.
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10.4 The supply of labour A reducti
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10.5 Industry labour market equilib
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10.5 Industry labour market equilib
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10.6 Transfer earnings and economic
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10. 7 Do labour markets clear? Mini
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10. 7 Do labour markets clear? How
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10.8 UK wages and employment Table
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Summary reducing demand for both fa
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Review questions In a graph with th
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APPENDIX Isoquants and the choice o
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11.2 Rentals, interest rates and as
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11.3 Saving, investment and the rea
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11. 5 The supply of capital service
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11.6 Equilibrium and adjustment in
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11.8 Land and rents supply of skill
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11.9 Income distribution in the UK
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Summary of average earnings. As liv
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Review questions the quantity of ca
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12.l Individual attitudes to risk S
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12.2 Insurance and risk Life assura
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12.3 Asymmetric information The uti
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12.3 Asymmetric information Executi
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12.4 Uncertainty and asset returns
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12.5 Portfolio selection We use the
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12.5 Portfolio selection Conversely
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12.6 Efficient asset markets Beta i
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12.6 Efficient asset markets II Beh
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12. 7 More on risk You own a copper
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12.8 E-products 100 80 60 - - - - -
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12.8 E-products If Britain had to s
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Summary Britannica shelved Serious
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Review questions 4 You set up a fir
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Welfa re economics Normative or wel
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CHAPTER 13 Welfare economics Welfar
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CHAPTER 13 Welfare economics Perfec
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CHAPTER 13 Welfare economics margin
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CHAPTER 13 Welfare economics II) E
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CHAPTER 13 Welfare economics have c
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CHAPTER 13 Welfare economics DD Wit
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CHAPTER 13 Welfare economics .. ;
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CHAPTER 13 Welfare economics 0 Firm
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CHAPTER 13 Welfare economics Was th
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CHAPTER 13 Welfare economics 0 u -
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CHAPTER 13 Welfare economics benefi
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CHAPTER 13 Welfare economics P' "i
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CHAPTER 13 Welfare economics • Di
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CHAPTER 13 Welfare economics Q MPC
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CHAPTER 14 Government spending and
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15.2 Some facts Annual real output
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15.3 An overview Since profits are
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15.4 National income accounting
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15.4 National income accounting Sav
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15.4 National income accounting phy
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15.4 National income accounting Hou
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15.5 What GNP measures Table l 5.3
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15.5 What GNP measures Table 15.4 N
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15.6 International comparisons Citi
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16. l Components of aggregate deman
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16.2 Aggregate demand S =-A + (1 -
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16.3 Equilibrium output C'I ·- c -
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16.4 Another approach: planned savi
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16. 5 A fall in aggregate demand A
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16.7 The paradox of thrift Table 16
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16.8 The role of confidence The cha
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Review questions 2 Suppose the MPC
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17 .2 Government and aggregate dema
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17.4 Deficits and the fiscal stance
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17.5 Automatic stabilizers and disc
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17 .6 The national debt and the def
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17. 7 Foreign trade and income dete
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17. 7 Foreign trade and income dete
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Summary and employment. In Figure 1
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Review questions 2 The government s
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18. 1 Money and its functions The m
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18.2 Modern banking M_o_d_er_n_ha
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18.3 How banks create money How did
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18.4 Financial crises However, ther
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18.4 Financial crises UK bank inter
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18.5 The traditional theory of mone
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18.6 UK money supply after the 2006
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18. 7 The demand for money flow and
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18. 7 The demand for money Table 18
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Review questions • Financial dere
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19.2 Traditional means of monetary
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19 .3 Lender of last resort Second,
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19.4 Equilibrium in financial marke
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19.5 Monetary control However, more
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19.5 Monetary control UK quantitati
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19. 7 The transmission mechanism AD
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19. 7 The transmission mechanism Wh
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19. 7 The transmission mechanism In
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19. 7 The transmission mechanism He
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Review questions • A higher inter
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20.2 The IS-LM model T_he_IS_-_L_
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20.2 The IS-LM model Until 2008 mon
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20.3 The IS-LM model in action Fisc
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20.4 Shocks to money demand Hence,
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20.5 The policy mix IS schedule, IS
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20.6 The effect of future taxes Que
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Summary helped explain positive UK
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Review questions IS-LM diagram, rec
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21. l Inflation and aggregate deman
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21.2 Aggregate supply demand. The A
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21.3 Equilibrium inflation AS0 AS,
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21.3 Equilibrium inflation It was c
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21.4 The labour market and wage beh
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21.6 The adjustment process The eco
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21. 7 Sluggish adjustment to shocks
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21.8 Trade-offs in monetary objecti
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21.8 Trade-offs in monetary objecti
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Review questions • In practice, w
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22. l Money and inflation rises wit
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22.2 Inflation and interest rates N
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22.3 Inflation, money and deficits
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22.4 Inflation, unemployment and ou
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22.5 The costs of inflation find th
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22.5 The costs of inflation You los
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22.6 Controlling inflation Without
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22. 7 The Monetary Policy Committee
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Summary 18 16 14 12 10 8 6 4 2 0 He
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Review questions Money growth (%) I
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23. l The labour market may simply
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23.2 Analysing unemployment The fig
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23.2 Analysing unemployment of an h
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23.3 Explaining changes in unemploy
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23.4 Cyclical fluctuations in unemp
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23.5 The cost of unemployment Count
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23.5 The cost of unemployment in th
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Review questions • Most European
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24.1 The foreign exchange market do
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24.2 Exchange rate regimes ... ii)
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24.3 The balance of payments statis
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24.4 The real exchange rate In row
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24.6 The financial account Table 24
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24.6 The financial account This sec
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24. 7 Internal and external balance
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24.8 The long-run equilibrium real
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Summary This figure is helpful in t
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25. l Fixed exchange rates So far,
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25. l Fixed exchange rates Gordon B
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25. l Fixed exchange rates A shock
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25.3 Devaluation 1 .., Devaluation
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25.3 Devaluation Table 25.1 The 196
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25.4 Floating exchange rates UK. Af
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25.5 Monetary and fiscal policy und
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25.5 Monetary and fiscal policy und
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Summary Summary • With a fixed ex
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Review questions 11 The following t
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26. 1 Economic growth Table 26.1 Re
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26.2 Growth: an overview In the lon
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26.3 Technical knowledge Learning b
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26.4 Growth and accumulation increa
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26.5 Growth through technical progr
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26.6 Growth in the OECD II : e!p ;:
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26.6 Growth in the OECD Within the
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Page 646 and 647: 26.8 The costs of growth rate g? If
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Page 650 and 651: Learning Outcomes By the end of thi
Page 652 and 653: 2 7 .1 Trend and cycle: statistics
Page 654 and 655: 27.2 Theories of the business cycle
Page 656 and 657: 27.2 Theories of the business cycle
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Page 662 and 663: 27.4 Towards a consensus: supply-si
Page 664 and 665: 27.5 An international business cycl
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Page 668: The world economy Part Five focuses
Page 671 and 672: CHAPTER 28 International trade Is t
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Page 687 and 688: CHAPTER 28 International trade thei
Page 689 and 690: CHAPTER 28 International trade Of c
Page 691 and 692: CHAPTER 28 International trade Conc
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Page 697 and 698: CHAPTER 29 Exchange rate regimes Ta
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Page 705 and 706: CHAPTER 29 Exchange rate regimes It
Page 707 and 708: CHAPTER 29 Exchange rate regimes Ta
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Page 711 and 712: CHAPTER 29 Exchange rate regimes th
Page 717 and 718: CHAPTER 29 Exchange rate regimes
Page 720 and 721: Activity 1.1 (a) (b) Activity 2.1 (
Page 722 and 723: Answers to activity questions Activ
Page 724 and 725: Answers to activity questions Activ
Page 726 and 727: Absolute advantage an individual, c
Page 728 and 729: Glossary Demand for money a demand
Page 730 and 731: Glossary Gross domestic product (GD
Page 732 and 733: Glossary Marginal product the margi
Page 734 and 735: Glossary Percentage change the abso
Page 736 and 737: Glossary Sole trader a business own
Page 738 and 739: A absolute advantage 11-12 internat
Page 740 and 741: Index commodity composition of trad
Page 742 and 743: Index elasticity of supply 82-4 ele
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Index happiness 594 new products 59
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Index Laffer curve supply-side econ
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Index exports 369 foreign countries
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Index reading diagrams 34-5 real bu
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Index future taxes effect 475-7 gov
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David K.H. Begg, Gianluigi Vernasca-Economics-McGraw Hill Higher Education (2011)

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