Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 12, Problem 2.3P
To determine
Validating the statement on pareto-efficiency.
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Suppose that the world price of oil is roughly
$90.00 per barrel and that the world demand and
total world supply of oil equal 34 billion barrels per
year (bb/yr), with a competitive supply of 20 bb/yr
and 14 bb/yr from OPEC. Statistical studies have
shown that the long-run price elasticity of
demand for oil is -0.40, and the long-run
competitive price elasticity of supply is 0.40.
Using this information, derive linear demand and
competitive supply curves for oil.
Let the demand curve be of the general form
Q=a-bP
and the competitive supply curve be of the
general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the long-run demand curve is
A.Q=47.50-0.15P.
B.Q=13.50-47.50P.
C.Q=47.50-P.
D.Q=47.50+0.15P.
E.Q=13.50-0.15P.
Suppose that the world price of oil is roughly
$100.00
per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the
short−run
price elasticity of demand for oil is
−0.05,
and the
short−run
competitive price elasticity of supply is
0.10.
Using this information, derive linear demand and competitive supply curves for oil.
Let the demand curve be of the general form
Q=a−bP
and the competitive supply curve be of the general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the
short−run
demand curve is?
The equation for the
short−run
competitive supply curve is
Consider a hypothetical world consisting of only three countries: Hungary, Australia, and Italy. Each country produces grain. Hungary is a small
economy compared to Australia and Italy and thus cannot influence foreign prices.
On the following graph, the supply and demand schedules of Hungary are shown as Sun and Dun. Foreign supply schedules of grain are perfectly
elastic: Australia is a more efficient supplier of grain than Italy because its supply price is $1.00 per bushel (SAus), whereas Italy's supply price is
$2.00 per bushel (Sita).
PRICE (Dollars)
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0
Hun
S +T
S₁ +T
S
S
+
0 3 6
A
Scenario
Free trade
With tariff
With customs union
m
SHu
12 15 18 21 24 27 30
GRAIN (Thousands of bushels)
Calculate the quantity of bushels Hungary imports when the three nations engage in free trade. Enter this value in the first row of the following table.
Also indicate which country Hungary imports from.
?
Imports
(Thousands of bushels) Imports…
Chapter 12 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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- Suppose that the world price of oil is roughly $50.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the long-run price elasticity f demand for oil is -0.40, and the long-run competitive price elasticity of supply is 0.40. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q = a - bP and the competitive supply curve be of the general form Q = c+dP, where a, b, c, and d are constants. The equation for the long-run demand curve is O A. Q=47.50 -0.27P. O B. Q=13.50 -0.27P. OC. Q=47.50-P O D. Q=47.50+ 0.27P. O E. Q=13.50-47.50P. The equation for the long-run competitive supply curve is O A. Q=12.00 + 47.50P. OB. Q=12.00 -0.16P. OC. Q 8.00+ 0.16P. O D. Q=8.00+ 0.27P. O E. Q=12.00 +0.16P.arrow_forwardIn mid-2010, Saudi Arabia and Venezuela (both members of OPEC) produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $20 per barrel, and the price of oil averaged $80 per barrel. Each country had the capacity to produce an extra 1 million barrels per day. At that time, it was estimated that each 1-million-barrel increase in supply would depress the average price of oil by $10. Consider the competition between Saudi Arabia and Venezuela as a game. a) Construct the payoff table. b) Do countries have a dominant strategy? c) What actions should each country take and why?arrow_forwardIn January 2018, President Trump imposed tariffs on solar panels and washing machines of 30 to 50%. In March 2018 he imposed tariffs on steel (25%) and aluminum (10%) from most countries, representing an estimated 4.1 percent of U.S. imports. On June 1, 2018, this was extended to the European Union, Canada, and Mexico. The Trump administration also set and escalated tariffs on goods imported from China. As of January 2020, the Trump administration had imposed tariffs on 16.8% of all goods imported into the U.S. What would be the effects of these tariff on the US economy? Who would benefit and who would lose from these tariffs in the U.S.?arrow_forward
- Before Cyprus joined the EU there was an import tariff on imported fresh meat from the EU of €1.00 per Kg at a selling price of €6.00 per kg. The total annual Demand was 20m kgs (20,000tons) per year while when the tariff was lifted (after the accession to the EU) the annual demand increased to 260m kgs (260,000tons). At the €6.00 per kg price, domestic supply has been half of the total annual supply while when the tariff was lifted this was reduced by 20%. Calculate: The total increase in consumer surplus due to the abolition of the tariff. The total amount of the tariff revenue that had been lost. The change in the domestic and foreign producer surplus.arrow_forwardSuppose that Russia and Australia (the two biggest producers of diamonds) make an agreement to both keep the production of diamonds low in order to keep the price high. After reaching this agreement, each country must decide whether to follow the agreement. Suppose that they are faced with the following decision: Russia's Decision High Production Australia's Decision High Production ($40 b, $40 b) Low Production ($60 b, $30 b) Low Production ($30 b, $60 b) where cells contain (Russia's profit, Australia's profit). a. If the game is played only one time, characterize each country's best strategy. ($50 b, $50 b) b. What is the Nash equilibrium? Is the Nash equilibrium pareto efficient? Briefly explain why or why not. c. If this were an infinitely repeated game, what outcome would you expect to emerge as the equilibrium? Briefly explain.arrow_forwardDuring the 1980s, most of the world’s supply of lysine was produced by a Japanese company named Ajinomoto. Lysine is an essential amino acid that is an important livestock feed component. At this time, the United States imported most of the world’s supply of lysine—more than 30,000 tons—to use in livestock feed at a price of $1.65 per pound. The worldwide market for lysine, however, fundamentally changed in 1991 when U.S.-based Archer Daniels Midland (ADM) began producing lysine—a move that doubled worldwide production capacity. Experts conjectured that Ajinomoto and ADM had similar cost structures and that the marginal cost of producing and distributing lysine was approximately $0.70 per pound. Despite ADM’s entry into the lysine market, suppose demand remained constant at Q = 208 − 80P (in millions of pounds). Shortly after ADM began producing lysine, the worldwide price dropped to $0.70. By 1993, however, the price of lysine shot back up to $1.65. Use the theories discussed in this…arrow_forward
- A federal regulation that required that all beef consumed in the US must be grown and processed in the US is likely to: Drive up the price of beef in the US Increase beef consumption in the US Decrease consumption of chicken in the US (assuming chicken is a substitute for beef in the US) Increase international trade in beef productsarrow_forwardSuppose that Canada imports pearl necklaces from India. The free market price is $111.00 per necklace. If the tariff on imports in Canada is initially 26%, Canadians pay $ per necklace. One of the accomplishments of the Uruguay Round that took place between 1986 and 1993 was significant across-the-board tariff cuts for industrial countries, as well as many developing countries. Suppose that as a result of the Uruguay Round, Canada reduces its import tariffs to 13%. Assuming the price of pearl necklaces is still $111.00 per necklace, consumers now pay the price of $ Based on the calculations and the scenarios presented, the Uruguay Round most likely hurts consumers hurts consumers in India. per necklace. in Canada andarrow_forwardSteel is produced only in the US and the rest of the world (ROW). The inverse demand and supply in the US are p = 110 - Q8 and p = 20 + Qỗ, while in the ROW, they are p = 70 - Q and p = Qk. All quantities are in millions of tons and all prices are in dollars per ton. Since steel is produced more cheaply in the ROW, the US imports it from the ROW under international trade. At any price, p, the imports of the US, QM. is the excess demand for steel given by the difference between the quantity demanded and the quantity supplied domestically in the US: QM = Q% - Qi. Similarly, the exports of the ROw, QF, is the excess supply of steel given by the difference between how much they produce and how much they demand: QE = Qk - Qg. (b) Find the consumer and producer surplus in the US at the price p". consumer surplus $ million producer surplus million (c) The US government imposes a tax of $12 per unit on the ROw's exports. Find the new world equilibrium price, p**, and new world equilibrium…arrow_forward
- Steel is produced only in the US and the rest of the world (ROW). The inverse demand and supply in the US are p = 110 - Q9 and p = 20 + Qi, while in the ROw, they are p = 70 - Q% and p = QR. All quantities are in millions of tons and all prices are in dollars per ton. Since steel is produced more cheaply in the ROW, the US imports it from the ROW under international trade. At any price, p, the imports of the US, QM, is the excess demand for steel given by the difference between the quantity demanded and the quantity supplied domestically in the US: QM = Q8 - Qi. Similarly, the exports of the ROW, QE, is the excess supply of steel given by the difference between how much they produce and how much they demand: QE = Q2 - Qg.arrow_forwardDomestic producers of microprocessors send a lobbyist to the U.S. government to request that the government impose trade restrictions on imports of microprocessors. The lobbyist claims that the U.S. microprocessor industry is new and cannot currently compete with foreign firms. However, if trade restrictions were temporarily imposed on microprocessors, the domestic microprocessor industry could mature and adjust and would eventually be able to compete in the world market. Which of the following justifications is the lobbyist using to support their argument in favor of the trade restriction on microprocessors? National-security argument Infant-industry argument Unfair-competition argument Jobs argument Using-protection-as-a-bargaining-chip argumentarrow_forwardSuppose the fictional country of everglass produces only two goodsarrow_forward
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