National supply and national demand curves:
1. Explain why neighboring countries tend to trade extensively with each other.
2. Use Table 1.1 to find the five most open economies in 2009. How does the growth performance of these countries compare with the growth of the average country listed in the table? What does this say about trade? Please note which edition of the book you are using.
3. According to figure 1.2, intra-European Union trade accounts for a large portion of the EU trade. What factors can explain this?
4. Consider a two good (raincoats, umbrellas), two country (Eugene, Corvallis) economy. Suppose that the prevailing world relative price of umbrellas is lower than Eugene's relative price of umbrellas under autarky. Would Eugene be a net importer or exporter of umbrellas? Would Eugene import or export raincoats? Explain your answers.
5. Consider the country of Eugene, which can choose to produce microbrews, bicycles, or both. Eugene's production is one of constant opportunity costs. Given full employment of its labor and capital, Eugene is capable of producing 3,000 bicycles. The opportunity cost of producing a microbrew is .25 bicycles. Draw the production possibility frontier of Eugene. Show all calculations.
6. Suppose the United States produces either fur hats or vodka. The national supply and demand curve for the United States fur hats are:
P = 250 - FH (National Demand)
P = 125 + FH (National Supply)
a.) Graph the national supply and national demand curves.
b.) What is the autarky price of fur hats in the United States? How much quantity is produced/consumed?
c.) Suppose the world price of fur hats is $100. Will the U.S. export or import fur hats? What quantity will they import/export?