Economics and Economic Reasoning -- Trade and Tradeoffs, and government policy -- The Evolving U.S. Economy in Perspective -- Supply and Demand -- Applying Supply and Demand -- Using Supply and Demand -- Microeconomics: The Basics -- Describing Supply and Demand: Elasticities -- Taxation and Government Intervention -- Foundations of Supply and Demand -- The Logic of Individual Choice: The Foundation of Supply and Demand -- Production and Cost Analysis I -- Production and Cost Analysis II -- Market Structure and Policy -- Perfect Competition -- Monopoly -- Monopolistic Competition, Oligopoly, and Strategic Pricing -- Real-World Competition and Technology -- Antitrust Policy and Regulation -- Factor Markets -- Work and the Labor Market -- Who Gets What? The Distribution of Income -- Applying Economic Reasoning to Policy -- Government Policy and Market Failures -- Politics and Economics: The Case of Agriculture -- Microeconomic Policy, Economic Reasoning, and Beyond -- International Trade Policy -- Macroeconomic Problems -- Economic Growth, Business Cycles, Unemployment, and Inflation -- National Income AccountingThe Macroeconomic Framework -- Growth, Productivity, and the Wealth of Nations -- Aggregate Demand, Aggregate Supply, and Modern Macroeconomics -- The Multiplier Model -- Money and Monetary Policy -- Money, Banking, and the Financial Sector -- Monetary Policy and the Debate about Macro Policy -- Inflation and Its Relationship to Unemployment and Growth -- Policy Issues in Depth -- Aggregate Demand Policy in Perspective -- Politics, Surpluses, Deficits, and Debt -- Macro Policies in Developing Countries -- International Policy Issues -- International Finance Policy -- Monetary and Fiscal Policy in a Global Setting
(LO9-1) Summary Economists and laypeople differ in their views on trade. (LO9-2) The gains from trade in the form of low consumer prices tend to be widespread and not easily recognized, while the costs in jobs lost tend to be concentrated and readily identifiable. (LO9-2) The United States has comparative advantages based on its skilled workforce, its institutions, and its language, among other things. (LO9-3) Inherent comparative advantages are based on factors that are relatively unchangeable. They are not subject to the law of one price. (LO9-3) Chapter 9 Comparative Advantage, Exchange Rates, and Globalization 203 Transferable comparative advantages are based on factors that can change relatively easily. The law of one price can eliminate these comparative advantages. (LO9-3) Concerns about trade for the United States are that U.S. relative wages will decline and the value of the dollar will decline as well. (LO9-3) The prices of currenciesforeign exchange rates can be
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An appre ciation of the dollar occurs when a single dollar can buy more foreign currency. A depreciation of the dollar occurs when a single dollar buys less foreign currency. (LO9-4) Key Terms An appreciation of a currency will shift the world supply of a good down and increase that countrys imports. (LO9-4) The depreciation of a countrys currency makes that countrys goods more competitive. (LO9-4) The resource curse occurs when significant amounts of natural resources are discovered. This raises for eign demand for the resource, raising the value of the domestic countrys currency, making other sectors less competitive. A variation of the resource curse is one reason for a greater inequality of income distribu tion in the United States. (LO9-4) balance of trade comparative advantage currency appreciation currency depreciation exchange rate inherent comparative advantage Questions and Exercises resour
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Will a country do better importing or exporting a good for which it has a comparative advantage? Why? (LO9-1) 2. Widgetland has 60 workers. Each worker can produce 4 widgets or 4 wadgets. Each resident in Widgetland cur rently consumes 2 widgets and 2 wadgets. Wadgetland also has 60 workers. Each can produce 3 widgets or 12 wadgets. Wadgetlands residents each consume 1 widget and 8 wadgets. Is there a basis for trade? If so, offer the countries a deal they cant refuse. (LO9-1) 3. Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity
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For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. At present, Iowa produces 20 million bushels of wheat and 120 million bushels of corn, while Nebraska produces 20 million bushels of corn and 120 million bushels of wheat. (LO9-1) a. Explain how, with trade, Nebraska can end up with 40 million bushels of wheat and 120 million bushels of corn while Iowa can end up with 40 million bushels of corn and 120 million bushels of wheat. b. If the states ended up with the numbers given in a, how much would the trader get? 4. Suppose that two countries, Machineland and Farmland, have the following production possibility curves: (LO9-1) 200 Machines 100 0 200 B (50, 150) A (20, 100) 100 Machines 0 D (150, 50) C (150, 10) 100 200 100 200 Food Machineland Food Farmland a. Explain how these two countries can move from points A and C, where they currently are, to points B and D. b. If possible, state by how m
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