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Growth and Trade
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International Economics Study Set 9

Business

Quiz 6 :
Growth and Trade

Quiz 6 :
Growth and Trade

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"According to the Rybczynski theorem, an increase in the country's labor force will result in an increase in the quantity produced of the labor-intensive good, with no change in the quantity produced of the other good." Do you agree or disagree Why
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Disagree. According to the Rybczynski theorem, an increase in the country's labor force will result in an increase in the quantity produced of the labor-intensive good, and a decrease in the quantity produced of the other good. The additional labor goes to work in the labor-intensive industry. But, to expand production of this good, extra non-labor resources (e.g., land) are needed to work with the extra labor. These extra non-labor resources are drawn from the other industry, so production of the other good decreases.

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"A country whose trade has almost no impact on world prices is at great risk of immiserizing growth." Do you agree or disagree Why
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Disagree. Immiserizing growth can occur if growth in the country leads the country to want to trade more, and the country's terms of trade deteriorate by a large amount. If a country's trade has almost no impact on world prices, then its growth will have almost no impact on its terms of trade, and immiserizing growth is very unlikely.

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If every new product goes through a product cycle, will the technological initiator (e.g., the United States or Japan) eventually develop chronic overall "trade deficits"
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According to the product life cycle approach, the technological originator of a product eventually will import the product. But its overall trade need not develop into chronic "deficits." As the technological originator continues to develop new products, it will export these products, while importing older products.

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Which of the following can lead to a reversal of the country's trade pattern (that is, a shift in which a previously exported good becomes an imported good, or a previously imported good becomes an export good) Consider each separately. Explain each. a. Growth in the country's total supply (endowment) of the factor that is initially scarce in the country. b. International diffusion of technology. c. Shifting tastes of the country's consumers.
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A free-trade equilibrium exists in a two-region, two-product world. The United States exports food and imports clothing. A long-term drought now occurs in East Asia. a. What is the effect on East Asia's willingness to trade b. Assuming that each region is large enough to influence international prices, how does East Asia's drought affect the equilibrium international price ratio c. Show on a graph and explain the effect of all this on the following in the United States: (1) Quantities produced of food and clothing. (2) Quantities consumed of food and clothing. (3) U.S. well-being. d. Which group in the United States is likely to gain real income in the long run as a result of all this Which group in the United States is likely to lose real income
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Continue with the scenario of questioN11-the new process in the United States and the resulting change in the international equilibrium price ratio. Focus now on effects in the rest of the world. a. Show graphically and explain the effect on quantities produced, quantities consumed, and well-being in the rest of the world. b. Explain as precisely as possible why well-being changes in the rest of the world.
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