Microeconomics
13th Edition
ISBN: 9781337617406
Author: Roger A. Arnold
Publisher: Cengage Learning
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Question
Chapter 4, Problem 7QP
To determine
The fewer exchange rates under disequilibrium
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Students have asked these similar questions
The UK recently voted to leave the EU, often referred to as Brexit. Suppose the
domestic market for food in the UK is described by:
D (P) = 40 – 2P
S(P) = 3P – 15
Equilibrium price is 11 and equilibrium quantity is 18 in the domestic market.
Suppose (for simplicity) that the UK only trades with the EU and the EU price for
food is Pworld = 8. Modelling the UK in the EU as having free trade, the UK is a food
importer.
a. Draw a supply demand graph with free trade, labelling the imports/exports,
consumer surplus and producer surplus.
The following graph shows a fictional world economy that consists of only two countries, Greenberg and Baxton. Both countries produce airplanes
under increasing-cost conditions. Note that the left-hand part of the diagram is a mirror image of a standard supply-demand diagram, and therefore
the supply and demand curves slope in directions opposite their usual directions.
Greenberg
Baxton
30
27
24
+18
+ + 15
12
In the absence of trade (that is, autarky), the equilibrium price in Greenberg is $
and the equilibrium price in Baxton is
|. (Hint: Enter all monetary values in full. For example, $7,000 rather than $7.)
In the absence of trade, which of the following statements is correct?
O Greenberg has the comparative advantage in production of airplanes.
O Greenberg and Baxton are equally good at producing airplanes.
O Baxton has the comparative advantage in production of airplanes.
Now suppose both countries open up to international trade with each other.
For each country, use the previous…
If a country opens up for trade, and it ends up importing a good,
the net effect of importing that good will be a gain for the economy.
the country could end up having a net gain or loss from importing that good, depending on how elastic the
curves are.
the net effect of importing that good will be a loss for the economy.
the country will have to export some other good in order to compensate for the losses incurred by importing
this good.
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