Essentials of Economics (MindTap Course List)
7th Edition
ISBN: 9781285165950
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 9, Problem 11PA
To determine
The impact of export subsidy.
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Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy (similar to a tariff) affect the domestic price of steel, the quantity of steel produced, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus, and government revenue? Is it is a good policy from the standpoint of economic efficiency?
Consider a small country that exports steel. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying a certain amount for each ton sold abroad. How does this export subsidy affect the domestic price of steel, the quantity of steel consumed, and the quantity of steel exported? How does it affect consumer surplus, producer surplus and government revenue? (Hint: The analysis of an export subsidy is like the analysis of a tariff.)
Assume 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.
Chapter 9 Solutions
Essentials of Economics (MindTap Course List)
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- Assume 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_forwardExplain 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_forwardWhich of the choices describes how the effects of import tariffs and import quotas are different? The domestic cost of an import tariff is larger than the domestic cost of a comparable import quota. Import tariffs create deadweight loss, whereas import quotas do not create deadweight loss. Quotas do not affect the equilibrium price, whereas tariffs do not affect the equilibrium quantity. Some foreign producers receive some of the benefits generated by an import quota.arrow_forward
- Assume that the functions of a demand curve and of a supply curve of a small country M for commodity X are Dx = 130 – Px and Sx = -10 + Px respectively. The unit price of commodity X imported from the rest of the world is 10 USD in the condition of the free trade. Draw the graph and calculate the increase of the producer’s surplus, the decrease of the consumer’s surplus, and the government revenue if the country M would impose the import tariff at the rate of 20% on the commodity X imported from the rest of the world?arrow_forwardExporting countries Which of the following will be true, everything else remaining constant, for a country that exports some good? a)The greater the price elasticity of supply for the good in the exporting country, the greater the volume of exports. b) The more that consumers in the exporting country respond to a change in price, the greater will be the gains from trade. b) The smaller the price elasticity of demand and supply in the exporting country, the greater the gains from trade. c) Some domestic suppliers will lose surplus while others will gain surplus. Choose the statements that match the question and briefly explain your reasoning to understand the question better. Thankyou.arrow_forwardThe 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)arrow_forward
- The figure shows a country’s domestic supply and demand curves for a good, as well as the world price, Pw, for the good that it faces, as a small country, on the world market. Initially, the country is exporting X1 units of that good at that price. Suppose that producers in this industry lobby policy makers to provide them with some sort of assistance to help them export even more. Policy makers are considering an export subsidy. What area represents the cost of this subsidy to the government (taxpayers)? Group of answer choices b+c+d a+b+c+d c+d a+b+carrow_forwardSuppose that the United States currently both produces kumquats and imports them. The U.S. government then decides to restrict international trade in kumquats by imposing a quota that allows imports of only six million pounds of kumquats into the United States each year. The figure shows the results of imposing the quota. Fill in the following table (enter all numeric responses rounded to the nearest penny for prices and as whole numbers for quantities). Without With Quota Quota World price of kumquats S U.S. price of kumquats $ Quantity supplied by U.S. million firms Quantity demanded million million million million 교차 Quantity imported million Area of consumer ▼ surplus Area of domestic ▼ ▼ producer surplus Area of deadweight loss V Price ($ per lb.) $1.75 1.50- of A C D HI B E J K 15 16 Q (millions of lbs.) Sus Du.s. 880arrow_forwardThe figure shows a country’s domestic supply and demand curves for a good, as well as the world price, Pw, for the good that it faces, as a small country, on the world market. Initially, the country is exporting X1 units of that good at that price. Suppose that producers in this industry lobby policy makers to provide them with some sort of assistance to help them export even more. Policy makers are considering an export subsidy. What area represents the loss to the consumers from this subsidy? Group of answer choices a a+b a+b+c zero (consumers do not lose)arrow_forward
- The figure below shows the hypothetical domestic supply and demand for baseball caps in the country of Spain. Domestic Supply and Demand for Baseball Caps Spain 10 Sa 8 X 2 1 0 10 20 30 40 50 60 70 80 90 100 Baseball caps (thousands per month) Suppose that the world price of baseball caps is €1 and there are no Import restrictions on this product. Assume that Spanish consumers are indifferent between domestic and Imported baseball caps. Instructions: Enter your answers as whole numbers. a. What quantity of baseball caps will domestic suppliers supply to domestic consumers? thousand b. What quantity of baseball caps will be imported? thousand Now suppose a tariff of €3 is levied against each Imported baseball cap. c. After the tariff is Implemented, what quantity of baseball caps will domestic suppliers supply to domestic consumers? thousand d. After the tariff Is Implemented, what quantity of baseball caps will be imported? thousand Price (€ per cap) 65 3₂arrow_forwardAssume that there are only two countries in the world: Venezuela and the U.S. Venezuela's demand curve for oil drilling rigs is (all prices are in millions of U.S. dollars): Qd = 440-20 P Its supply curve is: Qs 120 +30P a) Derive Venezuela's import demand schedule. What would the price of oll drilling rigs in the absence of trade be?"arrow_forwardThe 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_forward
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