1. Use the following figure to answer to the questions: A. The U.S. Motorbike Market B. International Motorbike Market C. The Rest of the World's Motorbike Market Price Price Price ($/unit) ($/unit) ($/unit) Sus 2,000 2,000 U.S. pretrade price World price with trade Exports B Sx 1,000 F 1,000 1,000 Imports 700 700 Dus Dm Df 65 Quantity (thousands) 75 Quantity (thousands) 15 40 50 Quantity (thousands) 25 50 Sus = U.S. supply Dus = U.S. demand Sy = Rest-of-world supply of exports (S, = S; - D7) Dm = U.S. demand for imports (Dm = Dus - Sus) Sf = Rest of world's supply Df = Rest of world's demand a. Using the figure above determine the value of the following for the importing country: -Producer surplus before and after trade -Consumer surplus before and after trade -Net changes in producer and consumer surplus -Net changes in total surplus b. Using the figure above determine the value of the following for the exporting country: -Producer surplus before and after trade -Consumer surplus before and after trade -Net changes in producer and consumer surplus -Net changes in total surplus

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Inflation and Purchasing Power Theory

In economic terms, Inflation refers to the increase in the costs of various commodities which are used in daily lifestyle like food, clothes, transport, etc. over a specific time. It may lead to a fall in the purchasing power of the people and also affects the exchange rate of the currency because of the price increase. As the purchasing power falls the unit of the currency in the economy falls. When the prices of the commodities are decreased, then the purchasing power of the consumers will rise, then it will lead to deflation and changes the currency of the base economy to that of the foreign economy which will lead to change in exchange rates.