Questions 2 and 12 from chapter 16 (pages 386 and 388)
pug21774_fm_i-xxviii.indd International Economics Sixteenth Edition pug21774_fm_i-xxviii.indd ipug21774_fm_i-xxviii.indd i 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer ESSENTIALS OF ECONOMICS Brue, McConnell, and Flynn Essentials of Economics Third Edition Mandel Economics: The Basics Second Edition Schiller Essentials of Economics Ninth Edition PRINCIPLES OF ECONOMICS Colander Economics, Microeconomics, and Macroeconomics Ninth Edition Frank and Bernanke Principles of Economics, Principles of Microeconomics, and Principles of Macroeconomics Fifth Edition Frank and Bernanke Brief Editions: Principles of Economics, Principles of Microeconomics, and Principles of Macroeconomics Second Edition Karlan and Morduch Economics, Microeconomics, and Macroeconomics First Edition McConnell, Brue, and Flynn Economics, Microeconomics, and Macroeconomics Twentieth Edition McConnell, Brue, and Flynn Brief Editions: Economics, Microeconomics, and Macroeconomics Second Edition Miller Principles of Microeconomics First Edition Samuelson and Nordhaus Economics, Microeconomics, and Macroeconomics Nineteenth Edition Schiller The Economy Today, The Micro Economy Today, and The Macro Economy Today Thirteenth Edition Slavin Economics, Microeconomics, and Macroeconomics Eleventh Edition ECONOMICS OF SOCIAL ISSUES Guell Issues in Economics Today Seventh Edition Sharp, Register, and Grimes Economics of Social Issues Twentieth Edition ECONOMETRICS Gujarati and Porter Basic Econometrics Fifth Edition Gujarati and Porter Essentials of Econometrics Fourth Edition Hilmer and Hilmer Practical Econometrics First Edition MANAGERIAL ECONOMICS Baye and Prince Managerial Economics and Business Strategy Eighth Edition Brickley, Smith, and Zimmerman Managerial Economics and Organizational Architecture Sixth Edition Thomas and Maurice Managerial Economics Eleventh Edition INTERMEDIATE ECONOMICS Bernheim and Whinston Microeconomics Second Edition Dornbusch, Fischer, and Startz Macroeconomics Twelfth Edition Frank Microeconomics and Behavior Ninth Edition ADVANCED ECONOMICS Romer Advanced Macroeconomics Fourth Edition MONEY AND BANKING Cecchetti and Schoenholtz Money, Banking, and Financial Markets Fourth Edition URBAN ECONOMICS O’Sullivan Urban Economics Eighth Edition LABOR ECONOMICS Borjas Labor Economics Seventh Edition McConnell, Brue, and Macpherson Contemporary Labor Economics Tenth Edition PUBLIC FINANCE Rosen and Gayer Public Finance Tenth Edition Seidman Public Finance First Edition ENVIRONMENTAL ECONOMICS Field and Field Environmental Economics: An Introduction Sixth Edition INTERNATIONAL ECONOMICS Appleyard and Field International Economics Eighth Edition King and King International Economics, Globalization, and Policy: A Reader Fifth Edition Pugel International Economics Sixteenth Edition The McGraw-Hill Series in Economics pug21774_fm_i-xxviii.indd iipug21774_fm_i-xxviii.indd ii 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer International Economics Sixteenth Edition Thomas A. Pugel New York University pug21774_fm_i-xxviii.indd iiipug21774_fm_i-xxviii.indd iii 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer INTERNATIONAL ECONOMICS: SIXTEENTH EDITION Published by McGraw-Hill Education, 2 Penn Plaza, New York, NY 10121. Copyright © 2016 by McGraw-Hill Education. All rights reserved. Printed in the United States of America. Previous editions © 2012, 2009, and 2007. No part of this publication may be reproduced or distributed in any form or by any means, or stored in a database or retrieval system, without the prior written consent of McGraw-Hill Education, including, but not limited to, in any network or other electronic storage or transmission, or broadcast for distance learning. Some ancillaries, including electronic and print components, may not be available to customers outside the United States. This book is printed on acid-free paper. 1 2 3 4 5 6 7 8 9 0 DOC/DOC 1 0 9 8 7 6 5 ISBN 978-0-07-802177-0 MHID 0-07-802177-4 Senior Vice President, Products & Markets: Kurt L. Strand Vice President, General Manager, Products & Markets: Marty Lange Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: James Heine Lead Product Developer: Michele Janicek Senior Product Developer: Christina Kouvelis Director of Marketing: Lynn Breithaupt Director, Content Design & Delivery: Linda Avenarius Senior Content Project Manager: Lisa Bruflodt Buyer: Laura M. Fuller Cover Image: Design Pics/Ryan Briscall Compositor: Laserwords Private Limited Printer: R. R. Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page. Library of Congress Cataloging-in-Publication Data Pugel, Thomas A. International economics/ Thomas A. Pugel.—Sixteenth edition. pages cm ISBN 978-0-07-802177-0 (alk. paper) 1. Commercial policy. 2. Foreign exchange. I. Title. HF1411.L536 2016 337—dc23 2014040055 The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website does not indicate an endorsement by the authors or McGraw-Hill Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites. www.mhhe.com pug21774_fm_i-xxviii.indd ivpug21774_fm_i-xxviii.indd iv 12/9/14 6:49 PM12/9/14 6:49 PM Final PDF to printer In memory of my parents, Adele and Edmund, and my parents-in-law, Vivian and Freeman, with my deepest appreciation and gratitude for all that they did to benefit the generations that follow. pug21774_fm_i-xxviii.indd vpug21774_fm_i-xxviii.indd v 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer vi About the Author Thomas A. Pugel Thomas A. Pugel is Professor of Economics and Global Business at the Stern School of Business, New York University, and a Fellow of the Teaching Excellence Program at the Stern School. His research and publications focus on international industrial competition and government policies toward international trade and industry. Professor Pugel has been Visiting Professor at Aoyama Gakuin University in Japan and a member of the U.S. faculty at the National Center for Industrial Science and Technology Management Development in China. He received the university-wide Distinguished Teaching Award at New York University in 1991, and twice he was voted Professor of the Year by the graduate students at the Stern School of Business. He studied economics as an undergraduate at Michigan State University and earned a PhD in economics from Harvard University. pug21774_fm_i-xxviii.indd vipug21774_fm_i-xxviii.indd vi 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer vii Preface International economics combines the excitement of world events and the incisiveness of economic analysis. We are now deeply into the second great wave of globalization, in which product, capital, and labor markets are becoming more integrated across countries. This second wave, which began in about 1950 and picked up steam in the 1980s, has now lasted longer than the first, which began in about 1870 and ended with World War I (or perhaps with the onset of the Great Depression in 1930). As indicators of the current process of globalization, we see that international trade, foreign direct investment, cross-border lending, and international portfolio investments have been growing faster than world production. Information, data, and rumors now spread around the world instantly through the Internet and other global electronic media. As the world becomes more integrated, countries become more interdependent. Increasingly, events and policy changes in one country affect many other countries. Also increasingly, companies make decisions about production and product develop- ment based on global markets. My goal in writing and revising this book is to provide the best blend of events and analysis, so that the reader builds the abilities to understand global economic developments and to evaluate proposals for changes in economic policies. The book is informed by current events and by the latest in applied international research. My job is to synthesize all of this to facilitate learning. The book Combines rigorous economic analysis with attention to the issues of economic policy that are alive and important today. Is written to be concise and readable. Uses economic terminology when it enhances the analysis but avoids jargon for jargon’s sake. I follow these principles when I teach international economics to undergraduates and master’s degree students. I believe that the book benefits as I bring into it what I learn from the classroom. THE SCHEME OF THE BOOK The examples presented in Chapter 1 show that international economics is exciting and sometimes controversial because there are both differences between countries and interconnections among countries. Still, international economics is like other econom- ics in that we will be examining the fundamental challenge of scarcity of resources— how we can best use our scarce resources to create the most value and the most benefits. We will be able to draw on many standard tools and concepts of economics, such as supply and demand analysis, and extend their use to the international arena. We begin our in-depth exploration of international economics with international trade theory and policy. In Chapters 2–7 we look at why countries trade goods and services. In Chapters 8–15 we examine what government policies toward trade would bring benefits and to whom. This first half of the book might be called international microeconomics. pug21774_fm_i-xxviii.indd viipug21774_fm_i-xxviii.indd vii 12/8/14 8:59 PM12/8/14 8:59 PM Final PDF to printer viii Preface Our basic theory of trade, presented in Chapter 2, says that trade usually results from the interaction of competitive demand and supply. It shows how the gains that trade brings to some people and the losses it brings to others can sum to overall global and national gains from trade. Chapter 3 launches an exploration of what lies behind the demand and supply curves and discovers the concept of comparative advantage. Chapter 4 shows that countries have different comparative advantages for the fundamental reason that people,