Chapter 44, Problem 1FRQ

a)

To determine

The graph that shows the domestic supply and demand for rice in country M.

Explanation of Solution

The following graph shows the domestic supply and demand for rice in country M.

  

In the graph, the vertical axis represents the price and the horizontal axis shows the quantity of rice. The demand is on a downward slope and the supply of country M’s farm is on an upward slope. This demand and supply are shown at prices $1.25 and $1.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.

b)

To determine

Labeling of no-trade equilibrium along with the trade equilibrium on the graph.

Explanation of Solution

Labeling of no-trade equilibrium along with the trade equilibrium on the graph will be shown as:

  

Non-trade equilibrium is found and labeled on the graph where the price is $1.25 and trade equilibrium is on point in the graph where the price is $1, which is equal to the demand for rice.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.

c)

To determine

The portions of the horizontal axis that show the quantity of rice that is imported at world price and supplied domestically at the whole world.

Explanation of Solution

The portions of the horizontal axis that show the quantity of rice that is imported at world price and supplied domestically at the whole world can be shown on the graph as:

  

The brackets are used to show the quantity of rice that is imported at world price and supplied domestically in the whole world.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.

d)

To determine

New trade equilibrium and shaded area of total tariff revenue when country M imposes a tariff of US $0.15 per pound of rice that is imported.

Explanation of Solution

New trade equilibrium and shaded area of total tariff revenue when country M imposes a tariff of US $0.15 per pound of rice which is imported as shown on the graph:

  

Horizontal S _{Rest of world} + tariff curve shows the new equilibrium.

A new trade equilibrium is found and labeled at a price of US $0.15 and the shaded area shows the total tariff revenue when country M imposes a tariff at this price for each pound of imported rice.

Economics Concept Introduction

Introduction: A global decentralized market for trading currencies is known as the foreign exchange market and for every currency, the foreign exchange rates are set by this market.