2. a. b. C. d. e. f. g. h. i. P ($) j. 15 14 13 12 11 k. 10 9 8 7 6 The diagram above represents the market for T-shirts in Country A, a small country. Country B can produce T-shirts at a constant cost of $6 per T-shirt. Country C can produce T-shirts at a constant cost of $8 per T-shirt. Initially, Country A has a $5 tariff per T-shirt. Country A consumers regard T-shirts made in Country A, Country B, and Country C as identical. 8 9 10 12 14 16 18 11 13 15 17 19 Now suppose Country A and Country C form a free trade area so that Country C goods enter Country A tariff free. 20 22 24 26 21 23 25 Q (M) From which country will Country A import T-shirts? Briefly explain Draw a supply and demand diagram for Country A's domestic market with the tariff. Label the relevant prices and quantities. Draw a supply and demand diagram for the international market with the tariff. Label the relevant prices and quantities. From which country will Country A import T-shirts? Briefly explain. Draw a supply and demand diagram for Country A's domestic market with the free trade area. Label the relevant prices and quantities. Draw a supply and demand diagram for the international market with the free trade area. Label the relevant prices and quantities. How much trade (in T-shirts) is created by the formation of the free trade area? How much trade (in T-shirts) is diverted, if any? Label the area(s) in your diagram for part (e) that show the gains or losses to Country A consumers from the free trade area. Calculate their $ value. Label the area(s) in your diagram for part (e) that show the gains or losses to Country A producers from the free trade area. Calculate their $ value. Label the area(s) in your diagrams for parts (e) and (f) that show the change in tariff revenue for Country A's government from the formation of the trade area. Calculate the $ change in government revenue. Does Country A experience a net welfare gain, a net welfare gain, or no change in net welfare from the formation of the free trade area? (Briefly explain.)
2. a. b. C. d. e. f. g. h. i. P ($) j. 15 14 13 12 11 k. 10 9 8 7 6 The diagram above represents the market for T-shirts in Country A, a small country. Country B can produce T-shirts at a constant cost of $6 per T-shirt. Country C can produce T-shirts at a constant cost of $8 per T-shirt. Initially, Country A has a $5 tariff per T-shirt. Country A consumers regard T-shirts made in Country A, Country B, and Country C as identical. 8 9 10 12 14 16 18 11 13 15 17 19 Now suppose Country A and Country C form a free trade area so that Country C goods enter Country A tariff free. 20 22 24 26 21 23 25 Q (M) From which country will Country A import T-shirts? Briefly explain Draw a supply and demand diagram for Country A's domestic market with the tariff. Label the relevant prices and quantities. Draw a supply and demand diagram for the international market with the tariff. Label the relevant prices and quantities. From which country will Country A import T-shirts? Briefly explain. Draw a supply and demand diagram for Country A's domestic market with the free trade area. Label the relevant prices and quantities. Draw a supply and demand diagram for the international market with the free trade area. Label the relevant prices and quantities. How much trade (in T-shirts) is created by the formation of the free trade area? How much trade (in T-shirts) is diverted, if any? Label the area(s) in your diagram for part (e) that show the gains or losses to Country A consumers from the free trade area. Calculate their $ value. Label the area(s) in your diagram for part (e) that show the gains or losses to Country A producers from the free trade area. Calculate their $ value. Label the area(s) in your diagrams for parts (e) and (f) that show the change in tariff revenue for Country A's government from the formation of the trade area. Calculate the $ change in government revenue. Does Country A experience a net welfare gain, a net welfare gain, or no change in net welfare from the formation of the free trade area? (Briefly explain.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:2.
a.
b.
C.
d.
e.
The diagram above represents the market for T-shirts in Country A, a small country. Country B can
produce T-shirts at a constant cost of $6 per T-shirt. Country C can produce T-shirts at a constant cost
of $8 per T-shirt. Initially, Country A has a $5 tariff per T-shirt. Country A consumers regard T-shirts
made in Country A, Country B, and Country C as identical.
f.
g.
h.
i.
P ($)
j.
15
14
13
12
11
10
9
8
7
6
Now suppose Country A and Country C form a free trade area so that Country C goods enter Country A
tariff free.
k.
8
10 12 14 16 18 20 22 24 26
11 13 15 17 19 21 23 25
9
Q
(M)
From which country will Country A import T-shirts? Briefly explain
Draw a supply and demand diagram for Country A's domestic market with the tariff. Label the
relevant prices and quantities.
Draw a supply and demand diagram for the international market with the tariff. Label the
relevant prices and quantities.
From which country will Country A import T-shirts? Briefly explain.
Draw a supply and demand diagram for Country A's domestic market with the free trade area.
Label the relevant prices and quantities.
Draw a supply and demand diagram for the international market with the free trade area. Label
the relevant prices and quantities.
How much trade (in T-shirts) is created by the formation of the free trade area? How much trade
(in T-shirts) is diverted, if any?
Label the area(s) in your diagram for part (e) that show the gains or losses to Country A
consumers from the free trade area. Calculate their $ value.
Label the area(s) in your diagram for part (e) that show the gains or losses to Country A
producers from the free trade area. Calculate their $ value.
Label the area(s) in your diagrams for parts (e) and (f) that show the change in tariff revenue for
Country A's government from the formation of the trade area. Calculate the $ change in
government revenue.
Does Country A experience a net welfare gain, a net welfare gain, or no change in net welfare
from the formation of the free trade area? (Briefly explain.)
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