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Friday, August 10, 2007

Microeconomics quiz of the week

From this week's Microeconomics section of ProfessorJournal.com is a review of this article (sub req'd) concerning globalization:
The Financial Services Forum is backing a manifesto that says globalization is good and governments and businesses must devise new ways to spread its benefits. The July 26th Capital column summarizes a recent study on globalization, commissioned by the Financial Services Forum, an association of the chief executives of 20 huge financial companies. The report's three conclusions: (1) Globalization is good for the U.S. economy, (2) gains from globalization are not evenly shared, and (3) to avoid a backlash against globalization, governments and businesses must come up with ways to spread its benefits more widely and assist those harmed by the economic changes associated with globalization.

The summary has the following questions:
1.) What is comparative advantage? What is the relationship between each country's comparative advantage and the pattern of international trade? Why do countries tend to export goods and services that are produced from inputs that are in relatively large supply? As a country increases its exposure to international trade, do domestic enterprises and their workers competing in industries with increased imports tend to benefit from the increased exposure? Do industries and their workers that export goods and services benefit from the increased exposure?

2.) Explain how globalization could be good for the U.S. economy, but the benefits of globalization not evenly shared.

3.) The federal government could help workers who would be displaced by international competition (due to lower import tariffs) by (i) instituting job retraining programs, (ii) making payments to the workers, (iii) and not lowering tariffs. Which option is best? Which is worst?

I will respond to any "answers" left in the comments section.

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