e. Russia, a large producer of wheat, experiences a massive
drought that reduces its wheat crop by more than 30
percent.
f. Three major potash-producing firms form a cartel and
restrict the world’s output of potash.
6. Predict what each of the following events would do to the terms
of trade of the importing country and the exporting country, other
things being equal.
a. A blight destroys a large part of the coffee beans
produced in the world.
b. Korean producers cut the price of the steel they sell to
Canada.
c. General inflation of 4 percent occurs around the world.
d. Violation of OPEC output quotas leads to a sharp fall in
the price of oil.
7. When the North American Free Trade Agreement (NAFTA) was
being negotiated in the early 1990s, there was a great deal of
debate. One critic argued that “it can’t be in our interest to sign
this deal; Mexico gains too much from it.” What does the theory
of the gains from trade have to say about that criticism?
8. In 2018, U.S. President Donald Trump argued that his country’s
trade agreements with other countries were bad for the United
States and were unfairly benefiting America’s trading partners.
What does the theory of the gains from trade have to say about
such arguments?
9. Adam Smith saw a close connection between a nation’s wealth
and its ability and willingness “freely to engage” in trade with
