Does international trade benefit all the economic agents in a country when the country is opened to international trade? Explain your answer
What will be an ideal response?
International trade does not benefit all the economic agents in a country when the country is opened to international trade. There will be some who will gain and others who will lose. The efficiencies achieved by exploiting comparative advantage and specialization are so great that the dollar value of gains far exceeds the dollar value of losses. In principle, the winners could compensate the losers, so that everyone –– both the winners and losers –– would be better off as a result of free trade. In practice, however, this is usually not possible, since it is hard for the government to identify how much each person has gained or lost as a consequence of international trade. Hence, the government cannot compensate the losers with targeted individual subsidies. With imperfect targeting or, as is often the case, no compensating redistribution by the government, some people do end up on the losing side of the ledger.
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A. is a luxury good. B. has no close substitutes. C. is a small part of the household budget. D. is a necessity.
What is aggregate demand? What are its major components?
If the nominal exchange rate e is foreign currency per dollar, the domestic price is P, and the foreign price is P*, then the real exchange rate is defined as
a. P/(Pe). b. P/(Pe). c. e(P/P). d. e(P/P),
If the quantity of labor supplied increases by 5 percent when the wage increases by 10 percent, the elasticity of labor supply is:
A. 5. B. 2. C. 1/2. D. 1/5.