SOLUTIONS MANUAL
All Chapters 1-15, 100% Original Verified, A+ Grade)
All Chapters Arranged Reverse: 15-1
Macroeconomics
Twelfth Edition
Michael Parkin
Robin Bade
This is the Only Original and Complete Solutions Manual for 15th Edition, All other
Files in the Market are Fake/Old/Wrong Edition.
, Chapter 15 INTERNATIONAL
TRADE POLICY
Answers to the Review Quizzes
Page 378
1. Describe the situation in the market for a good or service that Canada imports.
The goods and services Canada imports are those in which Canada has a higher opportunity
cost of production relative to other countries. In these markets, the Canadian no-trade price is
higher than the world price. With trade, the quantity produced in Canada is less than the
quantity consumed and the difference is imported.
2. Describe the situation in the market for a good or service that Canada exports.
The goods and services Canada exports are those in which Canada has a lower opportunity
cost of production relative to other countries. In these markets, the Canadian no-trade price is
lower than the world price. With trade, the quantity produced in Canada exceeds the quantity
consumed and the excess is exported.
Page 379
1. How is the gain from imports distributed between consumers and domestic
producers?
When a good is imported, the price paid by the consumer falls and the quantity consumed
increases. The consumer gains. When a good is imported, the price received by domestic
producers falls and the quantity produced decreases. The producer loses.
2. How is the gain from exports distributed between consumers and domestic
producers?
When a good is exported, the price paid by the consumer rises and the quantity consumed
decreases. The consumer loses. When a good is exported, the price received by domestic
producers rises and the quantity produced increases. The producer gains.
3. Why is the net gain from international trade positive?
The net gain from international trade is positive. In the case of imports, the consumer gains
what the producer loses and then gains even more on the cheaper imports. In the case of
exports, the producer gains what the consumer loses and then gains even more on the items
it exports.
Page 385
1. What are the tools that a country can use to restrict international trade?
A country can use tariffs, import quotas, other import barriers such as health, safety, and
regulation barriers, and voluntary export restraints to restrict international trade. Export
subsidies, which are illegal under a number of international agreements, bring gains to
domestic producers but result in underproduction in the rest of the world.
2. Explain the effects of a tariff on domestic production, the quantity bought, and the
price.
A tariff raises the domestic price of the product. The higher price increases domestic
production and decreases the quantity bought.
..
,206 CHAPTER 15
3. Explain who gains and who loses from a tariff and why the losses exceed the
gains.
When Canada places a tariff on a good, the price of the good rises in Canada and the
quantity of the good demanded in Canada decreases. Canadian consumers are worse off.
But Canadian producers of the good gain. Canadian producers are now able to sell their
goods for the world price plus the tariff. And at the higher price, the quantity of the good
supplied by Canadian producers increases.
There is a social loss with a tariff because part of the higher price paid to domestic producers
pays the higher cost of domestic production. The increased domestic production could have
been obtained at lower cost as an import. There is also a social loss from the decreased
quantity of the good consumed at the higher price.
4. Explain the effects of an import quota on domestic production, consumption, and
price.
An import quota raises the domestic price of the product. The higher price increases
domestic production and decreases domestic consumption.
5. Explain who gains and who loses from an import quota and why the losses
exceed the gains.
When the Canadian government imposes an import quota, Canadian consumers of the good
lose. The price of the good rises in Canada, and the quantity of the good demanded
decreases. The combination of a higher price and smaller quantity bought makes the
Canadian consumers worse off. Canadian producers of the good gain. The price of the
imported good rises, so Canadian producers increase production.
The combination of the higher price and larger quantity produced increases producers' profit.
The importer is able to buy the good on the world market at the world market price, and sell
the good in the domestic market at the domestic price. Because the domestic price exceeds
the world price, the importer gains.
Society loses with an import quota because the loss to consumers exceeds the gains of
domestic produces and importers. The social loss arises because part of the higher price
paid to domestic producers pays the higher cost of domestic production. And there is a social
loss from the decreased quantity of the good consumed at the higher price.
Page 389
1. What are the infant industry and dumping arguments for protection? Are they
correct?
The attempt to stimulate the growth of new industries is the infant-industry argument for
protection, which states that it is necessary to protect a new industry from import competition
to facilitate the growth of that industry, making it competitive in the world markets. This
argument is based on the idea that as firms mature they become more productive. However
this argument for protection only works if the benefits also spill over into other industries and
other parts of the economy. This is rarely the case, as the entrepreneurs of infant industries
and their financial supporters take this risk into account and all returns usually accrue only to
them, not to other industries. And it is more efficient to subsidize the infant industry needing
protection than it is to protect it by restricting trade.
The dumping argument for protection states that a foreign firm is selling its exports at a lower
price than its cost of production. Foreign firms trying to monopolize the international market
may use this practice. Once the competition is gone, the foreign firm will raise prices and
reap profits. This argument fails for several reasons. First, it is virtually impossible to detect
..
, INTERNATIONAL TRADE POLICY 207
the occurrence of dumping since it is impossible to verify a firm’s production costs. The test
most commonly used is if the firm’s price when it exports is lower than its domestic price. This
test only examines the supply side of the two markets and ignores the demand side. If the
domestic market is inelastic and the export market is elastic, then it is natural for a firm to
price the domestic goods higher than the exports. Second, it is difficult to see how a global
firm could have a monopoly for the goods or services it exports. There are too many foreign
suppliers (and potential suppliers), making global competition too extensive for a monopoly to
exist in the global market. And, even if there is global monopoly it is more efficient to regulate
it than to impose trade restrictions on its products.
2. Can protection save jobs and the environment and prevent workers in developing
countries from being exploited?
There are many myths about trade restrictions. The problem mentions three of them, all false
reasons often offered as reasons to restrict international trade. These arguments are:
Trade restrictions save domestic jobs: Free international trade does cost jobs in the import-
competing markets. But this argument ignores the fact that trade also creates other jobs.
Free trade brings about a global rationalization of labour and allocates labour resources
to their highest-valued activities.
Trade restrictions penalize lax environmental standards: Not all developing countries have
lax environmental standards. Also, a clean environment is a normal good. Countries that
are relatively poor and have lax pollution standards do not care as much about the
environment because imposing clean air, water, and land standards have a high
opportunity cost that will slow economic development. The best way to encourage
environmental quality is not to restrict economic development but to encourage rapid
economic growth, which will more quickly increase citizen demand for a cleaner
environment in developing countries.
Trade restrictions prevent rich countries from exploiting poorer countries: Importing goods
made in countries with low wage levels increases the demand for labour in those
countries, increasing the number of jobs available and raising wages over time. The
greater the amount of free trade that occurs with these countries, the quicker their wages
will rise and working conditions will increase in quality and safety.
3. What is offshore outsourcing? Who benefits from it and who loses?
Offshore outsourcing occurs when a firm in Canada buys finished goods, components, or
services from firms in other countries. Workers who have skills for jobs that have been sent
abroad lose from offshore outsourcing. Consumers who consume the goods and services
produced abroad and imported into Canada benefit.
4. What are the main reasons for imposing a tariff?
There are two main reasons for imposing tariffs on imports. First the government receives
tariff revenues from imports, which can be useful when revenues from income taxes and
sales taxes are less effective ways of gaining government revenue. Second rent seeking by
individuals in industries that would be hurt by foreign competition can influence the
government to impose tariffs.
5. Do the the winners from free trade win the political argument? Why or why not?
Trade restrictions are enacted despite the inherent inefficiency because of the political
actions of rent-seeking groups, which fear that foreign competition might have a negative
impact on their industry, firm, or jobs. The anti-trade groups are easily organized and have
much to gain from trade restrictions but the millions of consumers, who would win from free
..
All Chapters 1-15, 100% Original Verified, A+ Grade)
All Chapters Arranged Reverse: 15-1
Macroeconomics
Twelfth Edition
Michael Parkin
Robin Bade
This is the Only Original and Complete Solutions Manual for 15th Edition, All other
Files in the Market are Fake/Old/Wrong Edition.
, Chapter 15 INTERNATIONAL
TRADE POLICY
Answers to the Review Quizzes
Page 378
1. Describe the situation in the market for a good or service that Canada imports.
The goods and services Canada imports are those in which Canada has a higher opportunity
cost of production relative to other countries. In these markets, the Canadian no-trade price is
higher than the world price. With trade, the quantity produced in Canada is less than the
quantity consumed and the difference is imported.
2. Describe the situation in the market for a good or service that Canada exports.
The goods and services Canada exports are those in which Canada has a lower opportunity
cost of production relative to other countries. In these markets, the Canadian no-trade price is
lower than the world price. With trade, the quantity produced in Canada exceeds the quantity
consumed and the excess is exported.
Page 379
1. How is the gain from imports distributed between consumers and domestic
producers?
When a good is imported, the price paid by the consumer falls and the quantity consumed
increases. The consumer gains. When a good is imported, the price received by domestic
producers falls and the quantity produced decreases. The producer loses.
2. How is the gain from exports distributed between consumers and domestic
producers?
When a good is exported, the price paid by the consumer rises and the quantity consumed
decreases. The consumer loses. When a good is exported, the price received by domestic
producers rises and the quantity produced increases. The producer gains.
3. Why is the net gain from international trade positive?
The net gain from international trade is positive. In the case of imports, the consumer gains
what the producer loses and then gains even more on the cheaper imports. In the case of
exports, the producer gains what the consumer loses and then gains even more on the items
it exports.
Page 385
1. What are the tools that a country can use to restrict international trade?
A country can use tariffs, import quotas, other import barriers such as health, safety, and
regulation barriers, and voluntary export restraints to restrict international trade. Export
subsidies, which are illegal under a number of international agreements, bring gains to
domestic producers but result in underproduction in the rest of the world.
2. Explain the effects of a tariff on domestic production, the quantity bought, and the
price.
A tariff raises the domestic price of the product. The higher price increases domestic
production and decreases the quantity bought.
..
,206 CHAPTER 15
3. Explain who gains and who loses from a tariff and why the losses exceed the
gains.
When Canada places a tariff on a good, the price of the good rises in Canada and the
quantity of the good demanded in Canada decreases. Canadian consumers are worse off.
But Canadian producers of the good gain. Canadian producers are now able to sell their
goods for the world price plus the tariff. And at the higher price, the quantity of the good
supplied by Canadian producers increases.
There is a social loss with a tariff because part of the higher price paid to domestic producers
pays the higher cost of domestic production. The increased domestic production could have
been obtained at lower cost as an import. There is also a social loss from the decreased
quantity of the good consumed at the higher price.
4. Explain the effects of an import quota on domestic production, consumption, and
price.
An import quota raises the domestic price of the product. The higher price increases
domestic production and decreases domestic consumption.
5. Explain who gains and who loses from an import quota and why the losses
exceed the gains.
When the Canadian government imposes an import quota, Canadian consumers of the good
lose. The price of the good rises in Canada, and the quantity of the good demanded
decreases. The combination of a higher price and smaller quantity bought makes the
Canadian consumers worse off. Canadian producers of the good gain. The price of the
imported good rises, so Canadian producers increase production.
The combination of the higher price and larger quantity produced increases producers' profit.
The importer is able to buy the good on the world market at the world market price, and sell
the good in the domestic market at the domestic price. Because the domestic price exceeds
the world price, the importer gains.
Society loses with an import quota because the loss to consumers exceeds the gains of
domestic produces and importers. The social loss arises because part of the higher price
paid to domestic producers pays the higher cost of domestic production. And there is a social
loss from the decreased quantity of the good consumed at the higher price.
Page 389
1. What are the infant industry and dumping arguments for protection? Are they
correct?
The attempt to stimulate the growth of new industries is the infant-industry argument for
protection, which states that it is necessary to protect a new industry from import competition
to facilitate the growth of that industry, making it competitive in the world markets. This
argument is based on the idea that as firms mature they become more productive. However
this argument for protection only works if the benefits also spill over into other industries and
other parts of the economy. This is rarely the case, as the entrepreneurs of infant industries
and their financial supporters take this risk into account and all returns usually accrue only to
them, not to other industries. And it is more efficient to subsidize the infant industry needing
protection than it is to protect it by restricting trade.
The dumping argument for protection states that a foreign firm is selling its exports at a lower
price than its cost of production. Foreign firms trying to monopolize the international market
may use this practice. Once the competition is gone, the foreign firm will raise prices and
reap profits. This argument fails for several reasons. First, it is virtually impossible to detect
..
, INTERNATIONAL TRADE POLICY 207
the occurrence of dumping since it is impossible to verify a firm’s production costs. The test
most commonly used is if the firm’s price when it exports is lower than its domestic price. This
test only examines the supply side of the two markets and ignores the demand side. If the
domestic market is inelastic and the export market is elastic, then it is natural for a firm to
price the domestic goods higher than the exports. Second, it is difficult to see how a global
firm could have a monopoly for the goods or services it exports. There are too many foreign
suppliers (and potential suppliers), making global competition too extensive for a monopoly to
exist in the global market. And, even if there is global monopoly it is more efficient to regulate
it than to impose trade restrictions on its products.
2. Can protection save jobs and the environment and prevent workers in developing
countries from being exploited?
There are many myths about trade restrictions. The problem mentions three of them, all false
reasons often offered as reasons to restrict international trade. These arguments are:
Trade restrictions save domestic jobs: Free international trade does cost jobs in the import-
competing markets. But this argument ignores the fact that trade also creates other jobs.
Free trade brings about a global rationalization of labour and allocates labour resources
to their highest-valued activities.
Trade restrictions penalize lax environmental standards: Not all developing countries have
lax environmental standards. Also, a clean environment is a normal good. Countries that
are relatively poor and have lax pollution standards do not care as much about the
environment because imposing clean air, water, and land standards have a high
opportunity cost that will slow economic development. The best way to encourage
environmental quality is not to restrict economic development but to encourage rapid
economic growth, which will more quickly increase citizen demand for a cleaner
environment in developing countries.
Trade restrictions prevent rich countries from exploiting poorer countries: Importing goods
made in countries with low wage levels increases the demand for labour in those
countries, increasing the number of jobs available and raising wages over time. The
greater the amount of free trade that occurs with these countries, the quicker their wages
will rise and working conditions will increase in quality and safety.
3. What is offshore outsourcing? Who benefits from it and who loses?
Offshore outsourcing occurs when a firm in Canada buys finished goods, components, or
services from firms in other countries. Workers who have skills for jobs that have been sent
abroad lose from offshore outsourcing. Consumers who consume the goods and services
produced abroad and imported into Canada benefit.
4. What are the main reasons for imposing a tariff?
There are two main reasons for imposing tariffs on imports. First the government receives
tariff revenues from imports, which can be useful when revenues from income taxes and
sales taxes are less effective ways of gaining government revenue. Second rent seeking by
individuals in industries that would be hurt by foreign competition can influence the
government to impose tariffs.
5. Do the the winners from free trade win the political argument? Why or why not?
Trade restrictions are enacted despite the inherent inefficiency because of the political
actions of rent-seeking groups, which fear that foreign competition might have a negative
impact on their industry, firm, or jobs. The anti-trade groups are easily organized and have
much to gain from trade restrictions but the millions of consumers, who would win from free
..
