Microeconomics
21st Edition
ISBN: 9781259915727
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Question
Chapter 26, Problem 7DQ
To determine
Tariff, infant industry protection, and diversification of stability
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3. The following hypothetical production
possibilities tables are for China and the
United States. Assume that before
specialization and trade, the optimal
product mix for China is alternative B
and for the United States is alternative
U. LO20.2
a. Are comparative-cost conditions such
that
the
two
countries
should
specialize? If so, what product should
each produce?
b. What is the total gain in apparel and
chemical output that would result
from such specialization?
c. What are the limits of the terms of
trade? Suppose that the actual terms
of trade are 1 unit of apparel for 1 unit
of chemicals and 4 units of apparel for
6 units of chemicals. What are the
gains from specialization and trade for
each nation?
China Production Possibilities
Product
A
D
F
Apparel (in thousands)
30
24
18
12
Chemicals (in tons)
12
18
24
30
U.S. Production Possibilities
Product
R
T.
V
Apparel (in thousands)
hemicals (in tons)
10
8.
4
4
8.
12
16
20
p. 579
25
20
15
10
LO
0
P
a
0
O
3
(d) areas (b) + (c) + (d) + (e)
(e) areas (a) + (b) + (c) + (d)
e
6
b
O
S
9 12 15 18
25. If the free trade price is IP and this country imposes a trade tariff of $6, the loss to the economy as a result of this tariff is represented by
O(a) area (a) in this graph
(b) area (b) in this graph
(c) areas (c) + (d)
P*
21
IP
D
24 Q
Suppose that one country (Country A) subsidizes its exports and the other country (Country B) imposes a "countervailing" tariff that offsets its effect, so that in the end relative prices in the second
country are unchanged. What happens to the terms of trade? What about welfare in the two countries?
O A. From Country A's perspective, world relative supply will increase and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect
so Country A will definitely gain and Country B definitely loses.
O B. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this
effect so Country A will definitely gain and Country B definitely loses.
C. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will worsen its terms of trade. The countervailing…
Chapter 26 Solutions
Microeconomics
Ch. 26.2 - Prob. 1QQCh. 26.2 - Prob. 2QQCh. 26.2 - Prob. 3QQCh. 26.2 - Prob. 4QQCh. 26 - Prob. 1DQCh. 26 - Prob. 2DQCh. 26 - Prob. 3DQCh. 26 - Prob. 4DQCh. 26 - Prob. 5DQCh. 26 - Prob. 6DQ
Ch. 26 - Prob. 7DQCh. 26 - Prob. 8DQCh. 26 - Prob. 9DQCh. 26 - Prob. 10DQCh. 26 - Prob. 11DQCh. 26 - Prob. 12DQCh. 26 - Prob. 13DQCh. 26 - Prob. 14DQCh. 26 - Prob. 1RQCh. 26 - Prob. 2RQCh. 26 - Prob. 3RQCh. 26 - Prob. 4RQCh. 26 - Prob. 5RQCh. 26 - Prob. 6RQCh. 26 - Prob. 7RQCh. 26 - Prob. 8RQCh. 26 - Prob. 9RQCh. 26 - Prob. 10RQCh. 26 - Prob. 11RQCh. 26 - Prob. 12RQCh. 26 - Prob. 13RQCh. 26 - Prob. 1PCh. 26 - Prob. 2PCh. 26 - Prob. 3PCh. 26 - Prob. 4P
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Similar questions
- 5. Suppose that the comparative-cost ratios of two products- baby formula and tuna fish-are as follows in the hypotheti- cal nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 2 cans tuna fish 1 can baby formula = 4 cans tuna fish Tunata: In what product should each nation specialize? Explain why terms of trade of 1 can baby formula = would be acceptable to both nations. 25 cans tuna fisharrow_forward1.arrow_forwardA small country is facing the following domestic supply curve of a product: S = 200 + 20P, as well as the following domestic demand curve of a product: D = 400 - 20P. It can import it at a world price of 10 per unit. In addition, each unit of production yields a marginal social benefit of 10. The effect on welfare of an import tariff of 6 per unit is $. O -420 O 500 O -480 O 420 O 320 -500 O :180 O -320 480 O 180arrow_forward
- urgently needarrow_forwardAssuming there is no foreign trade in the economy, the economy is in equilibrium when Select one: O O O a. I + G= S + T. b. G +T=S+I. c. S+ T = C + I. d. IT = S + G.arrow_forwardWhen a small country imposes a tariff on an imported good, domestic consumers bear of the statutory burden and of the economic burden of the tariff. O 100%; 0% 50%; 50% 100%; 100% 0%; 100%arrow_forward
- Assume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 5 cans tuna fish Tunata: 1 can baby formula ≡ 7 cans tuna fish a. In what product should each nation specialize? Canswicki should produce _____- , and Tunata should produce _____ b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula ≡ 4 cans tuna fish: yes or no ii. 1 can baby formula ≡ 8 cans tuna fish: yes or no iii. 1 can baby formula ≡ 5.5 cans tuna fish: yes or noarrow_forwardFor the large-country in the graph, the free-trade price of the product is Price $25 $20 $15 10 O $15; 10 units O $15; 30 units O $25; 10 units O $20; 30 units 20 30 40 Quantity P+t pw P and the amount imported isarrow_forwardPrice (dollars per shirt) 44 40 36 32 28 24 20 16 12 O 8 O 32 million The figure shows the market for shirts in the United States, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. The United States imposes a tariff on imported shirts, $4 per shirt. 24 million S In the figure above, with the tariff the United States imports 8 million D O 16 million 16 24 32 40 48 56 64 Quantity (millions of shirts per year) million shirts per year.arrow_forward
- The policies are other than tariffs which restrict the volume of international trade Such policies areknown as non-tariff barriers to trade and include such practices as import quotas, orderly marketingagreements, domestic content requirements, subsidies, antidumping regulations, discriminatorygovernment procurement practices, social regulations, and sea transport and freight restrictions. It isnoted that quotas and tariffs have many of the same economic effects; however, quotas tend to bemore restrictive. Special attention is given to the revenue effect of an import quota, which may becaptured by domestic importers, foreign exporters, or the domestic government. Differentiatebetween an import subsidy and an export subsidyarrow_forwardIn Country A, the production of 1 bicycle requires using resources that could otherwise be used to produce 11 lamps. In Country B, the production of 1 bicycle requires using resources that could otherwise be used to produce 15 lamps. Which country has a comparative advantage in making bicycles? LO26.2 a. Country A. b. Country Barrow_forwardWhat is the net welfare gain from trade to the economy of country 1?arrow_forward
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