4. Winners and losers from free trade Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $40. Suppose that the world price for a meeker is $39. Assume that Meekertown is too small to influence the world price for meekers once they enter the International market. If Meekertown allows free trade, then it will meekers. Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false. Statement True False Meekertownian consumers were worse off without free trade than they are with it. Meekertownian producers were worse off without free trade than they are with it. True or False: When a country is too small to affect the world price, allowing for free trade will never increase total surplus in that country, regardless of whether it imports or exports as a result of international trade. O True O False

4. Winners and losers from free trade Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $40. Suppose that the world price for a meeker is $39. Assume that Meekertown is too small to influence the world price for meekers once they enter the International market. If Meekertown allows free trade, then it will meekers. Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false. Statement True False Meekertownian consumers were worse off without free trade than they are with it. Meekertownian producers were worse off without free trade than they are with it. True or False: When a country is too small to affect the world price, allowing for free trade will never increase total surplus in that country, regardless of whether it imports or exports as a result of international trade. O True O False

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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a. Consider a closed economy (an autarky). The equilibrium price of computers in this autarky is equal to $1,000. Suppose that the world price of computers is equal to $800. Does this country have comparative advantage in producing computers? If this autarky opens up to international trade, will this country export or import computers? b. Show the consumer surplus, producer surplus, equilibrium price and quantity traded for the closed economy in part-a in the market for computers.
2. Winners and losers from free trade Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of meekers is $35. Suppose that the world price of meekers is $21. Assume that Meekertown is too small to influence the world price of meekers once it enters the international market. If Meekertown allows free trade, then it will meekers. Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false. Statement True False Meekertownian consumers were worse off without free trade than they are with it. Meekertownian producers were better off without free trade than they are with it. True or False: When a country is too small to affect the world price, allowing free trade will always decrease total surplus in that country, regardless of whether it imports or exports as a result of international trade. True False
2. Welfare effects of a tariff in a small country Suppose Guatemala is open to free trade in the world market for oranges. Since Guatemala is small relative to the international market, the demand for and supply of oranges in Guatemala have no impact on the world price. The following graph shows the domestic market for oranges in Guatemala. The world price of a ton of oranges is Pw = $350. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producer surplus (PS). PRICE (Dollars per ton) 710 Domestic Demand Domestic Supply 670 630 590 550 510 470 430 28 8 8 8 8 8 8 8 390 350 P. 310 0 15 30 45 60 75 90 105 120 135 150 QUANTITY (Tons of oranges) CS PS Because Guatemala participates in international trade in the market for oranges, it will import tons of oranges. Now suppose the Guatemalan…
The following table is domestic supply and demand schedules for a product. Suppose that the world price of the product is $1. Quantity supplied (domestic) 12 10 Multiple Choice 7 4 4 units and 7 units. 4 units and 6 units. Refer to the above data. With free trade, that is, assuming no tariff, the outputs produced by domestic and foreign producers respectively would be: 1 unit and 15 units. Price 7 units and 0 units. $5 41 3 2 Quantity demanded (domestic) 7 11 16
2. Winners and losers from free trade Consider the imaginary economy of Meekerton and the market for meekles, a hypothetical good. Without international trade the domestic price of meekies is $21. Suppose that the world price of meekles is $33. Assume that if it were to enter the international market for meekies, Meekerton is too small to influence the world price. If Meekerton decides to participate in free trade, then it will Given current economic conditions in Meekerton, complete the following table by indicating whether each of the statements is true or false. False O meekies. Statement Meekertonian producers were better off without free trade than they are with it. Meekertonian consumers are better off under free trade than they were before. True O False True True or False: When a nation is too small to affect world prices, allowing free trade will have a non-negative effect on total surplus in that country, regardless of whether it imports or exports as a result of international…
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Question 10 Please examine the following set of panels. In this model, there are only two nations - Home and ROW - and each can only produce one item - autos. Assume that transportation costs are zero and that these nations have allowed free trade. As autos are imported from one country to another, which of the following can we most reasonable expect to see in the nations illustrated in this model? International Market for Autos Price $12 511 $10 S SA SP Sef 55 54 si S 51 Home Market for Autos 1 2 3 4 3 6 7 Quantity D 9 10 S $11 $10 50 57 50 55 54 53 $2 1 2 3 4 5 Om 679 10 Quantity O Producer surplus in the Home nation will increase because of free trade. O Consumer surplus in the Home nation will increase because of free trade. O Consumer surplus in the ROW nation will increase because of free trade. O Deadweight loss will occur in the ROW nation 2 $12 $11 $10 55 Sa $7 Se 55 54 S $2 $1 Row Market for Autos 1234 6 79 10 Quantity
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The following diagram shows the domestic demand and domestic supply in a market. In addition, assume that the world price in this market is $40 per unit. 190 180 170 160 150 140 130 120 110 100 90 80 70 60 50 40 30 8 ↑ Price 20 10 200 400 600 300 units of the good. Refer to Figure 9-22. With free trade, the country imports 600 units of the good. 900 units of the good. – 1,200 units of the good. 800 1000 1200 1400 1600 1800 2000 2200 Domestic Supply Domestic Demand 2400 Quantity
3. Question 3 A country, called 'Bikyland', does not allow for international trade. Bikyland produces motorbikes for her own consumption. At the equilibrium without international trade, the domestic price (Pdom) is $2000 per motorbike and the quantity (Qdom) is 5 million motorbikes. Then, Bikyland opens up her motorbike market for trade and finds that the world price (Pw) is $2500 per motorbike. Domestic supply (Qsdom) rises to 6 million and domestic demand (QDdom) falls to 4 million motorbikes. 3.1 Draw a graph of the motorbike market with SC, DC, Pdom Qdom Pw, Qsdom and Qpdom- Your graph should show all the numbers. 3.2 At the equilibrium without trade, calculate the revenue that producers/suppliers receive. 3.3 What is the domestic price of motorbikes after international trade is allowed? Will Bikyland become an importer or an exporter? Give a reason for your answer. 3.4 Does joining international trade lead to a shortage or surplus of supply? What is the amount? 3.5 Calculate the…
Suppose that under free trade a final good F has a price of $1,000 and that the prices of two inputs, A and B, used in the production of F are PA = $300 and PB = 500 and that one unit each of A and B is used in producing one unit of F. Suppose also that a tariff of 20 percent is placed on good F, while imported inputs had tariffs of 20 percent and 30 percent respectively. Calculate the effective rate of tariff protection for domestic industry producing good F and interpret the meaning of your result (All steps must be shown to obtain full credit). Note: v = value added without tariff and v' = value added with tariff.