More valued goods.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

2. A firm’s production function is given by:Q = 10KLThe unit capital and labour costs are 2 and 1 pounds respectively. The firm is contracted to produce2000 units.(a) Write out the optimisation problem of the firm. (b) Express this problem using a Lagrangian function. (c) Find values of K and L which fulfil the contract with minimal cost to the firm. (d) Calculate the total cost to the firm.

3. Consider the following estimated regression equation, estimated using a sample of firms, where RDis total firm spending on research and development in USD ($), Revenue is total firm revenuein USD ($), and W ages is the firms’ total spending on wages in USD ($) (standard errors inparentheses):RDd = 1000(600)+ 0.5(0.1)Revenue + 1.5(0.5)W ages,(a) Interpret the coefficients on each of the explanatory variables. (b) Which of the three coefficients are statistically significant at the 5% level of significance? Howdo you know? A researcher runs a two-sided statistical test of the null hypothesis that both the coefficients onthe explanatory variables above are jointly equal to 0.25 (mathematically, that β1 = β2 = 0.25),and reports a p-value of 0.045.(c) What does this p-value mean for the outcome of the test? (d) What would an appropriate two-sided alternative hypothesis look like?

4. Consider the following regression equation, where Google is equal to 1 if an individual in thesample has worked at Google and 0 otherwise, and Earnings is annual earnings in thousands ofpounds (standard errors in parentheses):Earnings \ = 25000(12.5)+ 42000(7.0)Google,(a) Interpret the coefficient on Google.(b) Is the coefficient on Google statistically significant at the 5% level? How do you know?(c) Suppose that instead of Google we had used a variable called NeverGoogle, equal to 1 if anindividual has never worked at Google and 0 otherwise. (i) How would the slope coefficientchange? (ii) What would happen to the intercept? (d) What prevents us from interpreting the coefficient on Google as a causal effect? Give examplesin your answer.

Answer 2

Question

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Answer 6

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Answer 7

Chapter 9, Problem 18C

Subpart (a):

To determine

More valued goods.

Answer 8

Subpart (a):

Expert Solution

Explanation of Solution

At any price, Kazakhstan produces more flaxseeds than the United States, so it must be cheaper to produce in Kazakhstan and at any price, the United States demands more flaxseeds than Kazakhstan, so flaxseeds are more highly valued in the United States.

Answer 9

Subpart (a):

Expert Solution

Answer 10

Subpart (a):

Expert Solution

Answer 11

Expert Solution

Answer 12

Subpart (b):

To determine

Quantity demand and supply at different price.

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Answer 13

Subpart (b):

To determine

Quantity demand and supply at different price.

Answer 14

Subpart (b):

Expert Solution

Explanation of Solution

Table 1 describes each nation’s willingness to import or export flaxseeds at each price.

Table 1

At a price of (in $)	The U.S would be willing to	Kazakhstan would be willing to
2	Import 12 million bushels	Import 4 million bushels
4	Import 10 million bushels	Import 2 million bushels
6	Import 8 million bushels	Neither import nor export
8	Import 6 million bushels	Export 2 million bushels
10	Import 4 million bushels	Export 4 million bushels
12	Import 2 million bushels	Export 6 million bushels
14	Neither import nor export	Export 8 million bushels
16	Export 2 million bushels	Export 10 million bushels
18	Export 4 million bushels	Export 12 million bushels
20	Export 6 million bushels	Export 14 million bushels

Answer 15

Subpart (b):

Expert Solution

Answer 16

Subpart (b):

Expert Solution

Answer 17

Expert Solution

Answer 18

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Answer 19

Subpart (c):

To determine

Quantity of imports.

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Answer 20

Subpart (c):

To determine

Quantity of imports.

Answer 21

Subpart (c):

Expert Solution

Explanation of Solution

From Table 1, it can be inferred that at a price of $10, the amount of flaxseeds that the United States is willing to import is equal to the amount of flaxseeds that Kazakhstan is willing to export. Therefore, the two countries would trade at the price of $10 per bushel and the quantity traded will be 4 million bushels.

Answer 22

Subpart (c):

Expert Solution

Answer 23

Subpart (c):

Expert Solution

Answer 24

Expert Solution

Answer 25

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Answer 26

Subpart (d):

To determine

Change in surplus.

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Answer 27

Subpart (d):

To determine

Change in surplus.

Answer 28

Subpart (d):

Expert Solution

Explanation of Solution

The change in surplus in the United States and Kazakhstan can be illustrated in Figures 1 and 2 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 1

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

The change in surplus is calculated using the following equation:

Change in surplus = Change in price × Average of pretrade and posttrade quantity=(Trade price−Pe)×(Pretrade quantity + Posttrade quantity2) (1)

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the trade. Hence, the buyers of flaxseeds are hurt by the trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(10−6)×(4.5 + 3.52)=4×4=16

The fall in consumer surplus is $16 million.

ii. In Kazakhstan, the producer surplus rises following the trade. Hence, the sellers of flaxseed are benefitted by the trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(10−6)×(4.5 + 7.52)=4×6=24

The rise in producer surplus is $24 million.

iii. In the United States, the consumer surplus increases following the trade. Hence, the buyers of flaxseed are benefitted by the trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|10−14|)×(6 + 82)=4×7=28

The rise in the consumer surplus is $28 million.

iv. In the United States, the producer surplus falls following the trade. Hence, the sellers of flaxseed are hurt by the trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|10−14|)×(6 + 42)=4×5=20

The decrease in producer surplus is $20 million.

The net benefit of loss by free trade is calculated by summing up the values calculated from (i) to (iv) in subpart (d).

Net benefit or loss by free trade = i + ii + iii + iv=−16+24+28−20=16

The net benefit by free trade is $16 million.

Answer 29

Subpart (d):

Expert Solution

Answer 30

Subpart (d):

Expert Solution

Answer 31

Expert Solution

Answer 32

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Answer 33

Subpart (e):

To determine

Change in surplus.

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.

Answer 34

Subpart (e):

To determine

Change in surplus.

Answer 35

Subpart (e):

Expert Solution

Explanation of Solution

With constant elasticity, the marginal burden that arises from a tariff increase by the importing country is shared equally between the importing and exporting country at a tariff rate equal to twice the optimal tariff for the importing country. Thus, the burden of tariff of $4 is shared between the US and Kazakhstan where the Kazakhstan will produce and sell flaxseeds for $8 per bushel and the U.S. buyers will pay $12 per bushel for it. This reduces the amount traded between the two countries to only 2 million bushels. This is because, it is the quantity of flaxseeds that the United States is willing to import at the price $12 and the quantity of flaxseeds that Kazakhstan is willing to export at the price of $8.

The change in surplus in the United States and Kazakhstan after the tariff of $4, which is imposed, can be illustrated in Figures 3 and 4 as shown below:

Modern Principles: Microeconomics, Chapter 9, Problem 18C , additional homework tip 3

The horizontal axis in both the figures measures the quantity and the vertical axis measures the price. P_e is denoted as the equilibrium price in both the figures.

Substituting the values in Equation (1), the change in surplus can be calculated as follows:

i. In Kazakhstan, the consumer surplus falls following the restricted trade. The fall in consumer surplus is calculated using Equation (1) as follows:
Fall in Consumer surplus =(8−6)×(4.5 + 42)=2×4.25=8.5

The fall in consumer surplus is $8 million.

ii. In Kazakhstan, the producer surplus rises following the restricted trade. The increase in producer surplus is calculated using Equation (1) as follows:
Rise in Producer surplus =(8−6)×(4.5 + 62)=2×5.25=10.5

The rise in producer surplus is $10.5 million.

iii. In the United States, the consumer surplus increases following the restricted trade. The rise in consumer surplus is calculated using Equation (1) as follows:
Rise in Consumer surplus =(|12−14|)×(6 + 72)=2×6.5=13

The rise in the consumer surplus is $13 million.

iv. In the United States, the producer surplus falls following the restricted trade. The decrease in producer surplus is calculated using Equation (1) as follows:
Fall in Producer surplus =(|12−14|)×(6 + 52)=2×5.5=11

The decrease in producer surplus is $11 million.

The net benefit of loss by restricted trade is calculated by summing up the values calculated from (i) to (iv) in subpart (e).

Net benefit or loss by restrcted trade = i + ii + iii + iv=−8.5+10.5+13−11=4

The net benefit by restricted trade is $4 million.

The deadweight loss is calculated as follows:

Deadweight Loss = Net benefitFree Trade−Net benefitrestricted trade=16−4=12

The tariff of $4 creates a deadweight loss of $12 million.

Answer 36

Subpart (e):

Expert Solution

Answer 37

Subpart (e):

Expert Solution

Answer 38

Expert Solution

Answer 39

Economics Concept Introduction

Concept Introduction:

Free trade: Free trade is a free market policy where international trade is carried out without any government restrictions on imports or exports.

Import: Import refers to the goods and services bought domestically when they are produced in other countries.

Consumer surplus: It is the monetary gain attained by a consumer calculated as the difference between the price a consumer pays for the product and the price he would be willing to pay rather than do without it.

Producer surplus: Producer surplus is the difference between the lowest willing price accepted by the producer and the actual price received by the producer.