INSTRUCTIONS
1. The textbook demonstrates why using exchange rates to compare standards of living in different countries leads to skewed answers since exchange rates only include traded goods and not items like haircuts and Big Macs. They argue that Big Macs are the same in every country so they discuss how to use Big Macs to compare productivity between two different countries. Explain how the McWage is calculated and what it means.
2. Explain why import restrictions lead to increased costs for consumers and lesser amounts sold for exporters.
3. Why do we see governmental restrictions on trade using tariffs, quotas and the like, with nations like China when all trade is mutually beneficial to the parties engaged in the exchanges? What is the impact on the wealth of nations from import restrictions? Explain.
4. Protecting automobile manufacturers from international competition is often about protecting the 26,000 or so jobs involved in automobile production. If the cost to consumers of this competition protection scheme is quite a bit higher than the value of the workers (measured by their wages) why would such a policy be enacted? What could be done to compensate these workers from lost jobs due to international competition?
5. Steel imports were limited by government policy in 2002 to save jobs in that industry. It was estimated that 200,000 jobs were lost to reduced exports as a result of the policy. How can that happen?