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→'''Question 37 on the final exam'''
You're right, it can't simply spend all its money on imports and sustain that indefinately. Nor, can it spend all its money on producing tennis shoes asnd sustain that indefinately either. My next comment is this: Your solution defies the Coase Theorem! ''In a world with no transaction costs '' (you did not mention any in the question) ''there will be the same amount of economic activity'' '''''regardless of who owns what.''''' '''BECAUSE CHINA CAN PRODUCE SHOES MORE CHEAPLY THAN THE U.S. THEY '''''MUST''''' PRODUCE ALL THE SHOES!''' Whether the U.S. has any alternate means of income does not change the fact that they will accuire the shoes more cheaply if they buy them from China. --[[User:BenjaminS|Ben]] <sub>[[User Talk:BenjaminS|Talk]]</sub> 21:34, 24 May 2007 (EDT)
You're right, it can't simply spend all its money on imports and sustain that indefinately. Nor, can it spend all its money on producing tennis shoes asnd sustain that indefinately either. My next comment is this: Your solution defies the Coase Theorem! ''In a world with no transaction costs '' (you did not mention any in the question) ''there will be the same amount of economic activity'' '''''regardless of who owns what.''''' '''BECAUSE CHINA CAN PRODUCE SHOES MORE CHEAPLY THAN THE U.S. THEY '''''MUST''''' PRODUCE ALL THE SHOES!''' Whether the U.S. has any alternate means of income does not change the fact that they will accuire the shoes more cheaply if they buy them from China. --[[User:BenjaminS|Ben]] <sub>[[User Talk:BenjaminS|Talk]]</sub> 21:34, 24 May 2007 (EDT)
There are three different parties (or rational economists if you will) mentioned either directly or indirectly in this question: The USA, China, and the recipients of the production costs. China and America will both be better off if they minimize the amount paid to the third party above. This is accomlished by having China doing the production. --[[User:BenjaminS|Ben]] <sub>[[User Talk:BenjaminS|Talk]]</sub> 22:31, 24 May 2007 (EDT)
== Final Exam ==
== Final Exam ==