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Chapter 9: Problem 9

Hal Varian, chief economist at Google, made the following two observations about international trade: 1\. Trade allows a country "to produce more with less." 2\. "There is little doubt who wins [from trade] in the long run: consumers." Briefly explain whether you agree with either or both of these observations.

Short Answer

Expert verified
Agree with both observations. Observation 1 aligns with the concept of comparative advantage in economics, where countries can produce more by focusing on goods with the least opportunity costs. Observation 2 is typically accurate as international trade often leads to increased consumer welfare from greater variety and lower prices. However, both perspectives represent a simplified view and real-world effects can be more complex.

Step by step solution

01

Understanding International Trade

The first step is to understand what international trade involves. It refers to the exchange of goods and services between countries. This exchange supports economies globally by allowing countries to take advantage of each other's strengths and resources.
02

Analyzing Observation 1

Now, analyze the first observation by Hal Varian. It suggests that trade allows a country to 'produce more with less.' This means that through trade, countries can specialize in the production of goods where they have a comparative advantage (producing at a lower opportunity cost), leading to greater efficiency and higher total output. This seems to hold true as international trade allows countries to focus on their strengths, leading to more efficient allocation of resources, lowering the cost of production, and producing more goods and services.
03

Analyzing Observation 2

Next, analyze the second observation which suggests that 'consumers win from trade in the long run.' This generally seems to be true as well, trade typically results in a greater variety of goods and services available for consumers, and due to increased competition, often at lower prices. Hence, international trade often leads to increased consumer welfare.
04

Final Evaluation

In the end, it's crucial to evaluate the statements carefully. While both observations appear generally accurate, it should be noted that they represent simplified perspectives. Actual effects of trade can be more complex, depending on a variety of factors, such as the structure of an economy, existing trade policies, market influences, etc.

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Most popular questions from this chapter

Briefly explain whether you agree with the following statement: "International trade is more important to the U.S. economy than it is to most other economies."

Briefly explain whether you agree with the following statement: "Japan has always been much more heavily involved in international trade than are most other nations. In fact, today Japan exports a larger fraction of its GDP than Germany, the United Kingdom, or the United States."

What is dumping? Who benefits and who loses from dumping? What problems arise when anti-dumping laws are implemented?

What is the difference between absolute advantage and comparative advantage? If a country has an absolute advantage in producing a good, will it always be an exporter of that good? Briefly explain.

The United States produces beef and also imports beef from other countries. a. Draw a graph showing the demand and supply of beef in the United States. Assume that the United States can import as much as it wants at the world price of beef without causing the world price of beef to increase. Be sure to indicate on your graph the quantity of beef imported. Assume that the world price of beef is lower than the U.S. price. b. Now show on your graph the effect of the United States imposing a tariff on beef. Be sure to indicate on your graph the quantity of beef sold by U.S. producers before and after the tariff is imposed, the quantity of beef imported before and after the tariff, and the price of beef in the United States before and after the tariff. c. Discuss who benefits and who loses when the United States imposes a tariff on beef.
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