Microeconomics (13th Edition)
Microeconomics (13th Edition)
13th Edition
ISBN: 9780134744476
Author: Michael Parkin
Publisher: PEARSON
Question
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Chapter 7, Problem 1SPA

(a)

To determine

What would be the price and quantity of containers brought and sold in the US without international trade.

(a)

Expert Solution
Check Mark

Explanation of Solution

The international trade helps the nation to clear off the excess products produced by the country or to attain the deficit products that the country cannot produce. Thus, in either ways, the trade between the nations takes place. When there is no international trade in the economy, the country must produce at the level where the demand in the economy is equal to the supply in the economy.

At the given price of $100 per container, the quantity demanded is 15 millions, whereas the quantity supplied is 0 million, which means that the country has to import the whole 15 millions from outside. Similarly, at a price point of $200 per container, the quantity demanded is simply 3 million, whereas the quantity supplied is as high as 8 million, which means the country has to export the excess 5 million to the international market. The price point where the domestic demand is equal to domestic supply is at $175 per container. At this point, the quantity supplied equals to the quantity demanded at 6 million, and so there is no need of international trade in the economy. Thus, it is the price per container without international trade, and the quantity brought and sold is 6 million.

Economics Concept Introduction

Market: The market is a place where the perspective buyers and sellers interact with each other, and exchange of goods and services takes place between the seller and the buyer at a mutually agreed price level.

International trade: The international trade is the exchange of goods and services between the nations or between the international borders.

(b)

To determine

At the price point, whether the US or outside world has a comparative advantage or not.

(b)

Expert Solution
Check Mark

Explanation of Solution

The international trade helps the nation to clear off the excess products produced by the country or to attain the deficit products that the country cannot produce. Thus, in either ways, the trade between the nations takes place. When there is no international trade in the economy, the country must produce at the level where the demand in the economy is equal to the supply in the economy.

At the given price of $100 per container, the quantity demanded is 15 millions, whereas the quantity supplied is 0 million, which means the country has to import the whole 15 millions from outside. Similarly, at a price point of $150 per container, the quantity demanded is 9 million, whereas the quantity supplied is only 4 million, which means the country has to import the deficit 5 million from the international market. This indicates that the world price is below the US price up to the price point where the quantity demanded is equal to the quantity supplied at $175 per container. Thus, the world price is below the US domestic price up to $175 per container.

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