a) Economic nationalists in developed countries worry that international trade is destroying the
national economy. A common complaint is that trade agreements open the economy to
increased trade with countries where workers are paid a fraction of what they earn at home.
Explain the faulty logic of this argument.
b)Comparing U.S. trade with Germany and Brazil, is trade with Germany more likely to be
based on comparative advantage or economies of scale? Why?
c)What are the differences between external and internal economies of scale with respect to
the size of firms, market structure, and gains from trade?
d)When the United States signed a free-trade agreement with Canada (1989), no one thought
twice about it. When the agreement with Mexico was signed (1994), there was significant
opposition. Use the concepts of interindustry and intraindustry trade to explain the differences
in opposition to the two trade agreements.
Sample Solution
