1. A representative of the American clothing industry recently made the following statement: Workers in Asia often work in sweatshop conditions earning only pennies an hour. American workers are more productive and as a result earn higher wages. In order to preserve the dignity of the American workplace, the government should enact legislation banning imports of low-wage Asian clothing. Answer the following:

a. Which parts of this quote are positive statements? Which parts are normative statements?

b. Would such a policy make some Americans better off without making any other Americans worse off? Explain who, and why.

c. Would low-wage Asian workers benefit from or be hurt by such a policy, and why?

2. Referring to the same situation in question 1, but instead of legislation banning the imports, assume that the government enacts a special tax on imported clothing that is so high that the selling price of the imports would be equal to the selling price of the same clothing made in America. This kind of tax is called a tariff and is enacted to protect domestic producers of the same items that can be imported at much lower costs. Answer the following:

a. What would shoppers see when they shopped in Wal-Mart and the other big box stores that sell so many imported items?

b. Would this tax policy have a better effect, worse effect, or no different effect on American workers than the legislation banning the imports discussed in question 1? What kind of effect would the tax have on the Asian workers?

3. Atlantis is a small, isolated island in the South Atlantic. The inhabitants grow potatoes and catch fresh fish. The accompanying table shows the maximum annual output combinations of potatoes and fish that can be produced. Obviously, given their limited resources and available technology, as they use more of their resources for potato production, there are fewer resources available for catching fish.

Maximum annual output options

Quantity of potatoes Quantity of fish

(pounds) (pounds)

A 1,000 0

B 800 300

C 600 500

D 400 600

E 200 650

F 0 675

a. Examine the Maximum annual output options table above and the resulting Production Possibility Frontier Graph below and answer parts b – f.

Production Possibility Frontier Graph

b. Can Atlantis produce 500 pounds of fish and 800 pounds of potatoes? Explain.

c. What is the opportunity cost of increasing the annual output of potatoes from 600 to 800 pounds?

d. What is the opportunity cost of increasing the annual output of potatoes from 200 to 400 pounds?

e. Can you explain why the answers to parts c and d are not the same?

f. What does this imply about the slope of the production possibility frontier?