1. What is the most important factor which contributes to competitiveness?

International trade can increase productivity but comparative advantages will change over
time as people change their demands. The key to competitiveness is the productivity and
cost of labor to produce it.
2. What are the challenges of the international trading system?
The biggest challenge is to find a good equilibrium between free trade and measures to
protect certain (poorer) countries.
3. Is it possible to add up the preferences of all consumers in an entire nation?
No, it is not impossil to make interpesronal comarisons of satisfaction, and this it is not
possible to add up preferences.
4. Who gains more from trade, when nations are of unequal economic size?
If one nation is significantly larger than the other, the larger nation attains fewer gains from
trade, while the smaller nation captures most of the gains from trade.
5. Is it possible for comparative advantage to change, thus changing the direction of trade?
The comparative advantage is always changing. Companies are constantly attempting to gain
an adventage over the rest of the cometition in the world. With these changes of the
comparative advantage there is a cahnge of the direction of trade. If a compay finds a way
toproduce a product for cheaper and thus lower the prices that is costs, they could gain an
advantage on the competition.
6. Do national security concerns lead to incomplete specialization?
Yes. National security concerns may lead a country to produce some of the commodity in
which it has comparative disadvantage, thus leading to incomplete specialization.
7. Does factor price equalization occur in the real world?
Yes, whichever factor receives the lowest price before two countries integrate economically
and effectively become one market will therefore tend to become more expensive relative to
other factors in the economy, while those with the highest price will tend to become
cheaper.
8. What is the focus of the product life cycle theory, and where is it applicable?
The product life cycle theory applies to manufactured goods. The home country is initially an
exporter then loses its competitive advantage to its trading partners and then may
eventually become the importer of the product. It focuses on the role of technological
modernization which is the determinants of trade patterns.
9. Can import duties have unintended side effects?
Tariffs do often have unexpected results. In the case of US steel import duties, there was a
significant number of layoffs among steel workers because of the resulting higher prices.
10. What happens to effective protection when the value added by the domestic producer
declines?
The degree of effective protection increases.

11. Is a tariff-rate quota a two-tier tariff? Why?

A TRQ combines two policy instruments that nations historically have used to restrict such
imports: quotas and tariffs. ... Essentially, a TRQ is a two-tiered tariff. The first Q imports
entering within the quota portion of a TRQ are usually subject to a lower, tariff rate called
the Inside tariff quota rate or ITQR.
 12. What is an OMA?
The Office of Monetary Affairs (OMA) monitors global macroeconomic developments and
works to prevent and resolve financial crises in countries where U.S. interests are at risk.
OMA also works to expand global economic growth and development by advocating sound
macroeconomic policies that foster economic stability and expand opportunities for U.S.
trade and investment worldwide.
13. What is the essential idea behind strategic trade policy?
The essential notion underlying strategic trade policy is imperfect competition.
14. What is the basis for trade adjustment assistance?
Trade Adjustment Assistance (TAA) is a federal program of the United States government to
act as a way to reduce the damaging impact of imports felt by certain sectors of the U.S.
economy. The current structure features four components of Trade Adjustment Assistance:
for workers, firms, farmers, and communities.

1. Does exposure to competition with the world leader in a particular industry improve a
firm's productivity?

A world leader is ac company which can own the maximum market shares or which can have a
market position because of the part of the services or the products. Now if the new comer or any
other company bench mark itself against the work leader consequently it will try to improve the
efficiency and productivity in comparison to principal company which ultimately enhances the
companys performance.

2. What are the essential arguments in favor of free trade?

Obviously, the example here is incredibly oversimplified. In the real world, there are
hundreds of nations producing thousands of products, most with different cost structures and
at different levels of efficiency. However, in this simple example is the fundamental argument
for free trade, which most economists support both in theory and in practice.

Economists support free trade because in general they want an economy, including the global
economy, to deliver the greatest good to the greatest number of people. A look back at the
example of U.S. and Japanese food and computer production will reveal the benefits of
specialization and exchange.

3. Will it be impossible to keep low-skilled jobs in the U.S.?

If tax credits or other incentives are made available to U.S. companies, it would be possible for those
companies to invest in training or technology for low-skilled workers. That would improve the
efficiency of the workers. Such improvements in productivity can more than outweigh the wage
advantage that is enjoyed by low-skilled workers overseas. New Balance Athletic Shoe Co. Inc.,
headquartered in Boston, Massachusetts, has been successful in retaining low-skilled production in
the United States by increasing worker productivity.
 4. Is it possible to estimate the gains from trade?

We extend the literature by using the empirical variation in the frequency of limit and market order
submissions to empirically link traders order submissions to their valuations. Without an
empirical link between traders valuations and their order submissions, it is not possible to estimate
the gains from trade. Our sample contains both the traders order submissions and the execu- tion
and cancellation histories of the traders order submissions. In our model, traders gains depend on
their valuations for the stock. We apply a discrete choice model that links the traders valuations to
the traders observable order submissions using the expected payoffs from the different order
submissions that the traders could have made.

5. Explain how immigration and trade may worsen wage inequality, and how college
education may mitigate against that.

In the long-term, free trade leads to economic growth of a nation. In the short-term, trade can lead
to a reduction in jobs in a particular industry. Typically, wages increase for workers with skills that are
scarce internationally. Wages also decrease for workers whose skills are abundant internationally.
For the US, this decrease particularly felt by the unskilled labor population. When demand grows for
cheap imports from labor-intensive nations and demand for domestic products decreases, domestic
production and demand for unskilled workers may decline.
Some economists argue that workers in declining industries simply need to move to areas with
higher demand.

6. How does Staffan Linder explain world trade patterns?

Linder created a hypothesis about the international trade patterns in 1961. Linder presented a
demand based idea of trade, unlike others who thought about a supply based theories involving
factor endowments. It seems that Linder's hypothesis was more significant for trade in manufactured
goods rather than non-manufactured goods. It also showed more significant for trade in capital
goods than in consumer goods. Linder offers a couple explanations of world trade patterns. Trade in
primary products conforms to the factor endowment theory. The basis for trade in manufactured
goods is stronger when the structure of demand in two nations is more similar.

7. Is it possible for a low nominal tariff rate to understate the effective rate of protection?
What is tariff escalation?

Yes. In some countries, the effective rate of protection is more than twice the nominal rate. The
effective rate of protection takes into account the effects of tariffs levied on raw materials and
intermediate goods. Tariff structures of industrialized nations have generally been characterized by
rates that give greater protection to intermediate and finished products than to primary
commodities. This is referred to as tariff escalation.

8. How can tariffs be justified?

In today's global market, the economies of small, less-developed countries are being exposed more
than ever before to competition from larger, more advanced countries. Therefore, the most
important justification for protective tariffs is the infant industries argument. According to this
argument, tariffs are needed to protect growing domestic industries from competition. Such
industries cannot hope to compete with established firms from other countries. At the same time,
their development is important because it will help allow the economy of their own country to
mature and diversify. That means that protective tariffs are necessary to protect the domestic
economy from competition and to let it develop and mature into a stronger economy that could
actually compete internationally.

9. Describe some of the differences between tariffs and quotas?

The main difference is that quotas restrict quantity while tariff works through prices. Thus, quota is a
quantitative limit through imports. ... If an import quota of EC (Fig. 5.3) amount is imposed then price
would rise to Pt because the total supply (domestic output plus imports) equals total demand at that
price.

10. What are the intent and impact of domestic content requirements?

Domestic content requirements are where a country requires a certain percent of a product to be
mae within the country without dealing with importing taxes. The intent of this is for more products
to be made within the country keeping jobsin the country. An example of this is that a compant from
the US is unable to put a sticker stating that it is made in the US unless it meets specific requirements

11. Has industrial policy contributed significantly to Japan's economic growth?

The extent to which industrial policy has contributed to Japan's economic growth is unclear. Japan
has benefited from a high domestic savings rate, an educated and highly motivated labor force, good
labor management relations, a shift of labor from low-productivity sectors to high-productivity
manufacturing, entrepreneurs willing to assume risks, and the like. These factors have enhanced
Japan's transformation from a low-technology nation to a high- technology nation. It is debatable
how rapidly this transformation would have occurred in the absence of an industrial policy. Although
Japan has the most visible industrial policy of the industrial nations, the importance of that policy to
Japan should not be exaggerated.

12. Explain how advocates of strategic trade policy differ from the classical free traders in their
treatment of externalities?

Advocates of strategic trade policy recognize that the classical argument for free trade considered
externalities at length. The difference, they maintain, is that the classical theory was based on
perfect competition and thus could not appreciate the most likely source of the externality, whereas
modern theories based on imperfect competition can. The externality in question is the ability of
companies to capture the fruits of expensive innovation. Classical theory based on perfect
competition neglected this factor because large fixed costs are involved in innovation and research
and development, and such costs ensure that the number of competitors in an industry will be small.