1. 1. What is China’s GDP per capita?
Population 1.3 billion (same as .0013 trillion)
GDP in $$: 6 trillion
2. Does that make China a rich or poor country compared
to the US? (GDP/capita: $48,000)
3. What part of the GDP formula might make politicians
want to restrict trade?
4. Why might that be a bad idea?
5. Where was your shirt made?

4.  2 producers:
 3 groups of consumers
 Sellers decide price and give pitch
 Buyers decide which tires to buy
Save American Jobs Bill
20% tariff on all foreign goods

5. • Mankiw calls it “open
economy”
• Free trade = absence of
restrictions of goods/services
• List 3 winners & 3 losers if all
countries had free trade
• Winners: consumers,
middlemen, retailers, poor
countries?
• Losers: local producers,
politicians, rich countries?

6.  Lower prices for consumers
 More competition leading to better products
 Job opportunities for producers
 Job opportunities in buyer countries
 Opportunity costs?

7. Source: World Bank

8.  Structural unemployment
 Lower union membership
 Ethical problems

9.  Tariffs
 Tax on imports
 Result: higher price for consumers, job saving
 Opportunity cost
Example: sugar
 Quotas
 Limit on imports
 Result: high prices, less choice
 Examples: Japanese full sized trucks
 Lexus, Infinity, etc

10.  Embargos
 Banning imports
 Result: less exports for embargoed
country
 Subsidies
 Gov’t help for industries
 Result: higher taxes locally, other
countries retaliate

11.  Dumping
 Flooding market with subsidized imports
 Hope to eliminate competition and raise price
 Not much LR evidence

13.  If you need to: read Mankiw Ch 29
 Page 641, Problems: 1-5,8, 12