The Following Simple Two-Country Question Illustrates How Countries Are Made

question 60

Essay

The following simple two-country question illustrates how countries are made better off by trade in assets. Imagine that there are two countries, Home and Foreign, and that residents of each own only one asset, domestic land yielding an annual harvest of kiwi fruit. Assume that the yield on the land is uncertain. Half the time, Home's land yields a harvest of 100 tons of kiwi fruit at the same time as Foreign's land yields a harvest of 50 tons. The other half of the time the outcomes are reversed. The Foreign's harvest is 100 tons, but the Home harvest is only 50.
-Suppose the two countries can trade shares in the ownership of their perspective assets without any restrictions. Assume that the consumers in both countries would like to totally smooth their consumption. Describe the outcomes.

Understand the legal implications and enforceability of exculpatory clauses.

Distinguish between agreements that are void due to violation of public policy and those that are legally binding.

Recognize the impact of an individual's bargaining power on the enforceability of agreements.

Understand the legal treatment of agreements involving attempts to influence public officials or legislation.

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Definitions:

Price-fixing

The practice where businesses conspire to establish prices at a certain level, rather than letting them be determined by free-market forces.

Herfindahl Index

A measure of market concentration that is calculated by squaring the market share of each firm competing in a market and then summing the resulting numbers.

Economic Concentration

The degree to which a small number of firms occupy a large proportion of the market in a particular industry.

Market Shares

The portion of a market controlled by a particular company or product.