Consider again this same graph: Price 8 7 6 5 4 3 2 0 1 10 20 30 40 Tariff Domestic demand 80 Domestic supply 70 50 60 World price Quantity Now let's say the economy opens to trade which is initially free. Assume we're dealing with a small economy. Calculate consumer surplus, carefully following all numeric instructions.
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- Consider two neighboring island countries called Contente and Euphoria. They each have 4 million labor hours available per month that they can use to produce corn, jeans, or a combination of both. The following table shows the amount of corn or jeans that can be produced using 1 hour of labor. ols Corn Jeans Country (Bushels per hour of labor) (Pairs per hour of labor) Contente 16 A-Z Euphoria 20 Initially, suppose Contente uses 1 million hours of labor per month to produce corn and 3 million hours per month to produce jeans, while Euphoria uses 3 million hours of labor per month to produce corn and 1 million hours per month to produce jeans. Consequently, Contente produces million bushels of corn and 48 million pairs of jeans, and Euphoria produces 15 million bushels of corn and 20 million pairs of jeans. Assume there are no other countries willing to trade goods, so, in the absence of trade between these two countries, each country consumes the amount of corn and jeans it produces. ▼…Two countries, Korea and Vietnam, are engaging in international trade.They produce two goods: automobiles and cloth. We observe a relativeabundance of cheap labor in Vietnam and a relative abundance of capitalin South Korea. a. Assume that automobiles are capital-intensive and cloth are cheaplabor-intensive. Using the Hecksher-Ohlin theory, explain what willhappen in trade between these two countries, in terms of export andimport. c. Draw a graph that shows the above situation in South Korean economy with a P P F and two relative prices (one before trade and theother after trade). The quantity of automobiles (QAuto) is on thehorizontal axis and the quantity of cloth (QCloth) is on the verticalaxis.“The country that is abundant in a factor exports the good whose production is intensive in thatfactor.” Explain the above statement with the help of a graph.
- Explanation of four factors which can shiftthe world demand foroil, indicating clearly the direction of the shifto Explanation of four factors which can shiftthe world supply of oil, indicating clearly the direction of the shift.The following graph is the respective production possibility curves for the USA and South Korea. It shows there total output of medical devices and cars in a state of autarky (no trade), and it illustrates the gains that both countries can benefit from when they engage in trade. 10,000 10,000 8,000 tc 8,000 6,000 6,000 Consumpfion wth trode Consumplion wih trode 4,000 4,000 2,000 2,000 D. 1,000 0.5 1 3 2. 3 Automobiles (millions) Automobiles (millions) (a) USA (b) South Korea Medical Devices Automobiles (millions) USA 4,000 0.5 million South Korea 1,000 2 million Answer the following questions utilizing the textbook and your lecture videos: 1) What assumption in the production possibilities model may lead the model to overstate the gains from trade and cause the actual gains to be less than predicted by the model? 2) Who gains from trade in this scenario? Who may be hurt by trade in this scenario? 3) Do you think there is a role for the government to help those who are hurt by trade in…Cortania starts to trade Blueberries for country Apton's Pears. Assume country What would be the likely consequences? OCortania will enjoy more Pears at lower prices ○Apton will benefit only if it is more efficient at producing Blueberries OCortania will benefit only if it is more efficient at producing Pears OOnly the country which is more efficient at producing Blueberries will benefit
- How does the fact that many goods are non-traded affect the extent of possible gains from trade?Production Advantage and Opportunity CostsAssume there are two countries, the United States and France, and two goods, automobiles andcomputers.The table presented below shows the number of automobiles and computers that the United States andFrance can produce with the same amount of resources.United States FranceAutomobiles 120 100Computers 60 55Source: Pearson Education Inc. 1.1 Which country has an absolute advantage in computer production? Motivate your answer.1.2 Which country has a comparative advantage in the production of automobiles? Motivateyour answer. 1.3 Assume these countries trade with one another under the conditions of free trade. Whichcountry will specialise in the production of automobiles? Motivate your answer. 1.4 If free trade exists between the United States and France, what are the highest and lowestlevels for the price of an automobile (expressed in terms of computers)? Motivate youranswer by stating which level favours the United States and France.Brazil can produce 100 pounds of beef or 10 autos. In contrast the United States can produce 40 pounds of beef or 30 autos. Which country has the absolute advantage in beef? Which country has the absolute advantage in producingautos?WhatistheopportunitycostofproducingonepoundofbeefinBrazil?Whatistheopportunitycost of producing one pound of beef in the United States?
- 4. Specialization and trade When a country has a comparative advantage in the production of a good, it means that it can produce this good at a lower opportunity cost than its trading partner. Then the country will specialize in the production of this good and trade it for other goods. The following graphs show the production possibilities frontiers (PPFS) for Shenandoah and Rainier. Both countries produce almonds and pistachios, each initially (l.e., before specialization and trade) producing 18 million pounds of almonds and 9 million pounds of pistachios, as indicated by the grey stars marked with the letter A. PISTACHIOS (Millions of pounds) 48 42 36 30 24 18 12 6 0 PPF Shenandoah A 0 6 12 18 24 30 36 ALMONDS (Millions of pounds) 42 48 ? PISTACHIOS (Millions of pounds) 48 42 36 30 24 18 12 6 0 0 PPF 6 Rainier A 18 12 24 30 36 ALMONDS (Millions of pounds) 42 48 ?Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel. Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph. Demand Supply 100 90 Triangle 80 P2 70 Polygon 50 40 P1 20 10 400 500 600 700 800 900 1000 100 200 300 Quantity of Steel (Tons) Price of Steel (Dollars per ton)A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and quantity of flat screen TVs?