in 2005 (Sbn) Distance from the United States (miles) 1,830 1,668 12,409 5,544 6,229 France Italy United States a. Using the gravity equation, compare the expected level of trade between the United St- and France and between the United States and Italy. Eronoh tr
in 2005 (Sbn) Distance from the United States (miles) 1,830 1,668 12,409 5,544 6,229 France Italy United States a. Using the gravity equation, compare the expected level of trade between the United St- and France and between the United States and Italy. Eronoh tr
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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
Transcribed Image Text:The United States, France, and Italy are among the world's largest producers. To
answer the following questions, assume that their markets are monopolistically competitive,
and use the gravity equation with B =93 and n =1.25.
GDP in 2005 ($bn) Distance from the United States (miles)
1,830
1,668
12,409
France
5,544
6,229
Italy
United States
a. Using the gravity equation, compare the expected level of trade between the United States
and France and between the United States and Italy.
b. The distance between Paris and Rome is 694 miles. Would you expect more French trade
with Italy or with the United States? Explain what variable (i.e. country size or distance) drives
your result.
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