No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fifteen: Issues in International Economics 386 CHAPTER FIFTEEN: QUESTIONS FOR REVIEW 1. In this chapter, you learned that the benefits to trade apply across borders. Given the gains from trade available, why is there so much hostility to free trade? Address the incentives of free trade opponents. 2. Why would the U.S. ever want to trade with Haiti? Compare this to why you might pay your little brother to go pull weeds so you can study for an economics exam. 3. True or False: a. The U.S. economy does not benefit from exports, although it does benefit from cheaper foreign imports. b. US exports are a relatively small (<5%) of our overall economy. c. There is no correlation to the budget deficit and the trade deficit. d. The U.S. trade deficit has risen dramatically over the last few decades. e. The self-correcting mechanism for trade imbalances is called the Hume Price- Specie Flow mechanism. 4. If a nation has a trade deficit, what must it have a surplus in? Why? 5. Why does trade provide an opportunity to spread the gospel? Hint: imagine a world with no differences in comparative advantage. What would happen to interactions between “Christian” countries and “heathen” countries? 6. Why might a trade deficit be considered good? Hint: address the issue of intertemporal consumption in your answer. 7. Why is mercantilism fundamentally flawed as a theory? 8. Show on a diagram how a domestic producer would benefit from a tariff. Show how a consumer is affected. Ok, this is the tough part. Do this without looking back at Figures 15.9 and 15.10 ! 9. What determines exchange rates in the short run? How about the long run? 10. Describe one argument for limiting free trade. What is the counterargument?