1. In a satirical petition on behalf of French candlemakers, Frederic Bastiat, a French economist, called attention to cheap competition from afar: sunlight. A law requiring the shuttering of windows during the day, he suggested, would benefit not only candlemakers but “everything connected with lighting” and the country as a whole. He explained: “As long as you exclude, as you do, iron, corn, foreign fabrics, in proportion as their prices approximate to zero, what inconsistency it would be to admit the light of the sun, the price of which is already at zero during the entire day!”[shortposting]
a. Is there a logical flaw in Bastiat’s satirical argument?
b. Do Japanese automakers prefer a tariff or a quota on their U.S. auto exports? Why? Is there likely to be consensus among the Japanese carmakers on this point? Might there be any Japanese automakers that are likely to prefer U.S. trade restrictions? Why? Who are they?
c. What characteristics of the U.S. auto industry have helped it gain protection? Why does protectionism persist despite the obvious gains to society from free trade?
2. Review the arguments both pro and con on NAFTA. What is the empirical evidence so far?
3. Given the resources available to them, countries A and B can produce the following combinations of steel and corn.
|Country A |Country B |
|Steel (tons) |Corn (bushels) |Steel (tons) |Corn (bushels) |
|36 |0 |54 |0 |
|30 |3 |45 |9 |
|24 |6 |36 |18 |
|18 |9 |27 |27 |
|15 |12 |18 |36 |
|6 |15 |9 |45 |
|0 |18 |0 |54 |
a. Do you expect trade to take place between countries A and B? Why?
b. Which country will export steel? Which will export corn? Explain.