Problem

1. If the production conditions in the United States and Japan were to become essentially the same, would the neoclassical model suggest that trade between the two countries would cease? Why or why not?

2. Ms. Jones, one of your neighbors, spends the majority of her income on food. She complains to you that, after your country became more open to trade and began exporting a variety of food products, her real income was reduced. She therefore maintains that the country has obviously been hurt by the new, expanded trade and that trade restrictions should be imposed. How would you respond to Ms. Jones?

3. (Requires appendix material) "If trade should cause income distribution to change such that there was a shift in the indifference map, it would be impossible to reach a conclusion regarding any possible gains from international trade." Discuss.