Solution Manual For International Economics 2nd Edition by Feenstra

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Edition: 2nd Edition

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Resource Type: Test bank

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Solution Manual For International Economics 2nd Edition by Feenstra

ASIN ‏ : ‎ B00E297KEE

1 International Trade
The Basics of World Trade
Although it is easy to recognize Brazilian coffee beans shipped to the U. S.
coffee market as an export, trade also occurs when services are performed
on site. For example, one of the larger categories of service exports is travel
and tourism. When a Canadian visits the Sydney Opera House, the money
spent is a service export of Australia. Likewise, a Japanese tourist eating at
one of the many restaurants along Waikiki contributes to the U. S. service
exports.
The difference between a country’s total value of exports and imports with
the rest of the world is its trade balance, where it has a trade surplus if export exceeds import. By contrast, when export is lower than import, a country runs a trade deficit. More often the bilateral trade balance between
two countries is reported in the news. From 2006 to 2009, the U.S. trade
deficit with China was worth over $200 billion every year.
2 Chapter 1 ■ Trade in the Global Economy
In the first half of the textbook we assume that each country maintains a
balanced trade. One of the reasons is that macroeconomic conditions dealing
with high spending and low savings, which leads to a trade deficit, are discussed later in the textbook. The second reason is that there are issues in terms
of the official statistics used to calculate the bilateral trade balance.
HEADLINES
An iPod Has Global Value. Ask the (Many) Countries
That Make It
This article discusses the problems with reporting bilateral trade flows between countries due
to the difference between the sale price of an export and the value a country adds. The example in this article is the Apple iPod, which are imported from China at a price around
$150, yet most of the parts assembled in China are themselves imported from other countries. The assembly of the 451 parts that currently takes place in China accounts for only
about $4 of the total cost of the iPod. This article demonstrates why the bilateral trade
deficit between the U.S. and China may be a misleading statistic.
APPLICATION
Is Trade Today Different from the Past?
Both the volume and composition of international trade has changed greatly
over the past century. The change in the composition of trade can be made
clear by dividing trade into several groups, as is done in Figure 1-1. From Figure 1-1(a), we can see that U.S. trade has shifted away from agriculture and
raw materials and toward manufactured goods. From 1925 to 2009, U.S. imports of food, feeds, and beverages and industrial supplies and materials declined from 90% to 35% of imports. From Figure 1-1(b), we see that the export share of these same categories also fell from 80% to 40% over the same
period. Figure 1-1 also shows that the import and export of capital goods plus
consumer goods grew steadily; imports rising from 10% to 65% and exports
from 20% to 60%. ■
Map of World Trade
Figure 1-2 shows the world exports and imports flow of goods in 2006, where
thicker lines indicate larger amounts of trade. In addition, trade flows within
regions are noted by circles.
European and U.S. Trade More than a quarter of world trade occurred
within Europe in 2006 with $3.7 trillion. Reasons for the large trade flows
include proximity (many countries are located in the region) and the lack of
(or low) import tariffs, which are taxes on international trade. With the
continuing expansion of the European Union, trade within this region is expected to grow. If we include the internal trade among the European countries with the large trade flows between Europe and the United States, we find
that about 37% of the $11.6 trillion in world-trade flows in 2006 can be accounted for by these industrially advanced trading partners. Motivations for
Chapter 1 ■ Trade in the Global Economy 3
why countries with similar technological capabilities and consumption patterns may gain from trading with one another will be discussed in Chapter 4.
Trade in the Americas Total trade in goods between North, Central, and
South America and the Caribbean accounts for 11% of the world-trade flows,
with a large portion of the trade flows occurring between the North American Free Trade Area (NAFTA) partners, namely the United States, Mexico,
and Canada

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