Principles of Economics (12th Edition)
12th Edition
ISBN: 9780134078779
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 33, Problem 4.3P
To determine
The impact of quota.
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The cost of producing cars in Canada is $30,000, while the cost of producing cars in Mexico is $22,000, while
in the U.S. it costs $18,000. Canada currently imposes a 50% tariff on all automobile imports.
a) If Canada enters into a customs union with Mexico, will this lead to trade diversion or trade creation?
b) If the tariff rate was originally 100%, would Canada entering into a customs union with Mexico lead to
trade diversion or trade creation?
c) If the tariff rate was originally 100%, and the cost of producing cars in the U.S. was $12,000, would
Canada entering into a customs union with Mexico lead to trade diversion or trade creation?
The following graph shows the domestic supply of and demand for soybeans in Honduras. The world price (Pw) of soybeans is $530 per ton and is
represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world
price of soybeans and that there are no transportation or transaction costs associated with international trade in soybeans. Also, assume that domestic
suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.
890
Domestic Demand
Domestic Supply
850
810
770
730
690
650
610
570
Pw
530
490
50
100
150
200
250
300
350
400
450
500
QUANTITY (Tons of soybeans)
PRICE (Dollars per ton)
The demand for cameras in a certain country is given by D = 8000 - 30P, where P is the price
of a camera. Supply by domestic camera producers is S 4000 + 10P. Suppose that world
price of a camera is $150. If this country decides to trade, which of the following is true?
3000 cameras will be exported
Domestic production of cameras will decrease by 500
Domestic production of cameras will increase by 500
2000 cameras will be imported
Chapter 33 Solutions
Principles of Economics (12th Edition)
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- Explain why a quota may result in lower total surplus in the home country than a tariff, even if they have the same effect on imports and the domestic price.arrow_forwardAll of the following statements about import tariffs are true except Group of answer choices they result in countries selling the product at a lower price to domestic consumers they reduce the volume of trade and the gains from trade they limit specialization and the division of labor they yield revenue for the government that levies tariffsarrow_forward4. Effects of a tariff on international trade The following graph shows the domestic supply of and demand for soybeans in Guatemala. The world price (Pw) of soybeans is $550 per ton and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of soybeans and that there are no transportation or transaction costs associated with international trade in soybeans. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. 830 Domestic Demand Domestic Supply 795 760 725 O 690 655 620 585 Pw 550 515 480 30 60 06 120 150 180 210 240 270 300 QUANTITY (Tons of soybeans) PRICE (Dollars per ton)arrow_forward
- The demand for cameras in a certain country is given by D = 8000 – 30P, where P is the price of acamera. Supply by domestic camera producers is S = 4000 + 10P. If this economy opens to tradewhile the world price of a camera is $50, and the government imposes a tariff of $30 per camera,what will be the quantity of cameras that this country imports or exports?arrow_forwardAssume that you have been hired by an International Organization to be consulted on various issues that the country Motherland faces. For this exercise, assume that Motherland is a small agricultural economy.The biggest trading partner of Motherland is the United States. Unlike Motherland, the United States is a large industrial country Motherland imports electronics from the United States. The government of Motherland is considering to impose quotas on these electronics imports coming from the United States. Would you recommend it? Explain your answer. In your explanation, distinguish the effect on the consumers of electronics, the domestic producers of electronics and the government.Your explanation should not exceed 200 words.arrow_forwardThe following graph shows the domestic supply of and demand for maize in Burundi. The world price (Pw) of maize is $260 per ton and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. 530 Domestic Demand Domestic Supply 500 470 440 410 380 350 320 270, 260 290 260 230 30 60 90 120 150 180 210 240 270 300 QUANTITY (Tons of maize) PRICE (Dollars per ton)arrow_forward
- The demand for cameras in a certain country is given by D=8000−30P, where P is the price of a camera. Supply by domestic camera producers is S=4000+10P. Suppose that world price of a camera is $150. If this country decides to trade, which of the following is true? Group of answer choices 3000 cameras will be exported Domestic production of cameras will decrease by 500 Domestic production of cameras will increase by 500 2000 cameras will be importedarrow_forwardThe following graph shows the domestic supply of and demand for maize in Burundi. The world price (Pw) of maize is $270 per ton and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. 450 Domestic Demand Domestic Supply 430 410 390 370 350 330 310 290 P 270 250 40 80 120 180 200 240 280 320 360 400 QUANTITY (Tons of maize) If Burundi is open to international trade in maize without any restrictions, it will import tons of maize. Suppose the Burundian government wants to reduce imports to exactly 160 tons of maize to help domestic producers. A tariff of per ton will achieve this. A tariff set at this level would raise $ in revenue for the…arrow_forwardThe following graph shows the domestic supply of and demand for wheat in New Zealand. The world price (PWPW) of wheat is $255 per bushel and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of wheat and that there are no transportation or transaction costs associated with international trade in wheat. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.arrow_forward
- The following graph shows the domestic supply of and demand for maize in Bangladesh. The world price (Pw) of maize is $255 per ton and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. 455 Domestic Demand Domestic Supply 430 405 380 355 330 305 280 Pw 255 230 205 200 250 300 350 400 450 500 QUANTITY (Tons of maize) If Bangladesh is open to international trade in maize without any restrictions, it will import 300 tons of maize. Suppose the Bangladeshi government wants to reduce imports to exactly 100 tons of maize to help domestic producers. A tariff of $ per ton will achieve this. A tariff set at this level would raise $ in revenue for the…arrow_forwardChina placed tariffs on the importation of US soybeans. Assume that the domestic market for soybeans in China is described by the following equations: Demand: P = 11.5 – Q Supply: P = 5.5 + Q Price is in 10 Yuan (¥) per bushel of soybeans and the units for Quantity are 100 million bushels per year. This is to make graphing simpler. This does NOT mean that the price is 10 and quantity is 100. Rather it means that if the price was 40¥ and the quantity was 7,500,000,000 bushels, this would plot as 4 and 7.5 respectively. The world price for soybeans is ¥65/bushel (this would graph as a horizontal line at 6.5). Graph the soybean market in China showing equilibrium both with no barriers to trade and with a ¥15/bushel tariff. Be sure to fully and clearly label the graph including: Domestic Demand curve (D), Domestic Supply curve (S), the World Price (WP), and the Price with tariffs (PT), along with the quantities imported both with and without the tariff. Based on your graph, what…arrow_forwardAssume that you have been hired by an International Organization to be consulted on various issues that the country Motherland faces. For this exercise, assume that Motherland is a small agricultural economy. The biggest trading partner of Motherland is the United States. Unlike Motherland, the United States is a large industrial country. Assume Motherland imports electronics from the United States. The government of Motherland is considering to impose quotas on these electronics imports coming from the United States. Would you recommend it? Explain your answer. In your explanation, distinguish the effect on the consumers of electronics, the domestic producers of electronics and the government.Your explanation should not exceed 200 words.arrow_forward
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