Principles of Microeconomics
7th Edition
ISBN: 9781305156050
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Chapter 9, Problem 1PA
Subpart (a):
To determine
The impact of international trade.
Sub part (b):
To determine
The impact of international trade.
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The world price of wine is below the price that would prevail in Canada in the absence of trade. Assume that Canadian imports of wine are a small part of
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Assume that Canada is an importer of televisions and that there are no trade restrictions. Canadian consumers buy 1.2 million televisions per year, of which 600,000 are produced domestically and 600,000 are imported.
Suppose that a technological advance among Japanese television manufacturers causes the world price to fall $800 to $700. Draw a graph to show how this change affects the welfare of Canadian consumers and Canadian producers and how it affects total surplus in Canada. Label the diagram carefully to show all the areas using letters of alphabets. (Do not shade the areas).
After the fall in price, consumers buy 1.4 million televisions, of which 400,000 are produced domestically and 1 million are imported. Calculate the change (this will be only the area either gained or lost by consumers and producers) in consumer surplus, producer surplus and total surplus due to price reduction. Provide numerical answers by calculating the area of change in surplus due to fall in…
When China's clothing industry expands, the increase in world supply lowers the world price of clothing. Consider the effects this has on both an importer and an exporter of clothing.
Chapter 9 Solutions
Principles of Microeconomics
Ch. 9.1 - Prob. 1QQCh. 9.2 - Prob. 2QQCh. 9.3 - Prob. 3QQCh. 9 - Prob. 1CQQCh. 9 - Prob. 2CQQCh. 9 - Prob. 3CQQCh. 9 - Prob. 4CQQCh. 9 - Prob. 5CQQCh. 9 - Prob. 6CQQCh. 9 - Prob. 1QR
Ch. 9 - Prob. 2QRCh. 9 - Prob. 3QRCh. 9 - Prob. 4QRCh. 9 - Prob. 5QRCh. 9 - Prob. 6QRCh. 9 - Prob. 1PACh. 9 - Prob. 2PACh. 9 - Prob. 3PACh. 9 - Prob. 4PACh. 9 - Prob. 5PACh. 9 - Prob. 6PACh. 9 - Prob. 7PACh. 9 - Prob. 8PACh. 9 - Prob. 9PACh. 9 - Assume the United States is an importer of...Ch. 9 - Prob. 11PA
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- When China's clothing industry expands, the increase in world supply lowers the world price of clothing. Consider the effects this has on both an importer and an exporter of clothing.arrow_forwardUse the Graph below to answer the questions about International Trade: Price P1 P2 P3 A B D F с E D -Quantity a. At equilibrium, what area represents Consumer Surplus? Blank 1 and Blank 2. b. At equilibrium, what area represents Producer Surplus? Blank 3 and Blank 4. c. Which Price Level would make this country become an importer of this good? Blank 5 d. Which Price Level would make this country become an exporter of this good? Blank 6arrow_forwardVietnam has a policy of free trade in motorcycles which are sold in world markets at a price of 10,000 per motorcycle. Under free trade, Vietnam produces 100,000 motorcycles and imports 100,000 motorcycles. To provide some protection to the domestic industry, Vietnam imposes an import tariff of $1500 per motorcycle. With this tariff in place, production in Vietnam rises by 5,000 motorcycles and consumption drops by the same amount. Calculate the effects of the tariff on: a. Consumer Surplus b. Producer Surplus c. Government Revenues d. Overall Welfare e. If the tariff imposed by the Vietnamese had led to small reduction in world prices of, say, 250 dollars, how, qualitatively, would the welfare calculations (a), (b), (c) and (d) above change?arrow_forward
- 1. Andorra is a small country, incapable of affecting world prices. It imports peanuts at the world price of 10 cents per sack. Andorra's demand for peanuts is given by: D = 400– 10P. Andorra's supply curve for peanuts is: S = -20 + 5P. Determine the equilibrium under free trade. a) Calculate and show in a diagram the following effects of a quota that limits the import of peanuts to 60 sacks. · The increase in the domestic price. · The quota revenue. · The loss due to production distortion. · The loss due to consumption distortion. b) Could the Government of Andorra have achieved the same trade result using a tariff?arrow_forwardThe nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20 and the equilibrium quantity is 3 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1 million. If the domestic demand curve and domestic supply are both linear, the resulting increase in the total surplus in the Textilian T-shirt market is about Zero dollars $6 million $14 million) $4 million $12 million $8 millionarrow_forwardThe nation of textilia Does not allow imports of clothing. In it’s equilibrium Without trade, a T-shirt cost $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith’s ‘The wealth of Nations’ While on vacation, the president decides to open the textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in textilia arises to 8 million, while the number of T-shirts produced declines to 2 million.arrow_forward
- Kazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where Sx is the supply curve and Dx is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 120,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 120,000 apples. PRICE (Dollars perton) 1000 900 800 700 000 500 400 300 200 -- 100 D 0 30 00 90 120 160 Sk 180 210 240 270 300 5x+Q -- Price with Quota Change in PS Quota Rents DWLarrow_forwarda. In the absence of trade, what is the equilibrium price and equilibrium quantity? b. The government opens the wheat market to free trade and U.S enters the Turkish market, pricing wheat at $40 per ton. What will happen to the domestic price of wheat? What will be the new domestic quantity supplied and domestic quantity demanded? How much wheat will be imported from U.S? c. The government imposes a $10 per ton tariff on all imported wheat. What will happen to the domestic price of wheat? What will be the new domestic quantity supplied and domestic quantity demanded? How much wheat will now be imported from U.S? d. How much revenue will the Turkish government receive from the $10 per ton tariff?arrow_forwardThe nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 3 million T-shirts. After reading Adam Smith’s The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market prices of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1 million. Illustrate the situation just described in a graph. Your graph should show all the numbers. Calculate the change in consumer surplus, producer surplus, and total surplus that results from opening trade. (Hint: Recall that the area of a triangle is ½ x base x height.)arrow_forward
- When China's supply of clothing increases, the increase in world supply lowers the world price of clothing. a. Draw an appropriate diagram to analyze how this change in the world price affects consumer surplus, producer surplus, and total surplus in a nation that imports clothing, such as the U.S. Label (i) the old and new world prices, (ii) the change in quantity demanded by consumers, and (iii) the change in quantity supplied by domestic producers. Make a table that shows consumer surplus, producer surplus, and total surplus at the old world price and new world price. b. Now draw an appropriate diagram to show how this change in price affects consumer surplus, producer surplus, and total surplus in a nation that exports clothing such as Bangladesh. Label (i), (ii), and (iii) as above, and make a similar table. C. Compare your answers from (a.) and (b.). What are similarities and what are the differences? Which country should be concerned about the expansion of the Chinese clothing…arrow_forwardAssume the United States is an importer of televisions and there are no trade restrictions. US consumers buy 1 million televisions per year, of which 400,000 are produced domestically and 600,000 are imported,a. Suppose that a technological advance among Japanese television manufacturers causes the world price of televisions to fall by $100. Draw a graph to show how this change affects the welfare of U.S. consumers and U.S. producers and how it affects total surplus in the United States.b. After the fall in price, consumers buy 1.2 million televisions, of which 200,000 are produced domestically and 1 million are imported. Calculate the change in consumer surplus, producer surplus, and total surplus from the price reduction. c. If the government responded by putting a $100 tariff on imported televisions, what would this do? Calculate the revenue that would be raised and the deadweight loss. Would it be a good policy from the standpoint of U.S. welfare? Who might support the policy?d.…arrow_forward8. Which of the following would be a deadweight loss from a tariff? A) The shift of consumer surplus to government B) The increase in producer surplus c) The decrease in consumer surplus D) The decrease in consumer surplus due to a drop in consumption 3|Page 9. Use the graph below and the following information to answer the next question. The world price of soybeans is $2.00 per bushel, and the importing country is small enough not to affect the world price. 2.25 2.00 World price 60 70 130 140 Qimillions bushels Based on Figure above, suppose the government puts a tariff of $0.25 per bushel on soybean imports. How much will the tariff reduce imports? A) Imports will decrease by 10 million bushels. B) Imports will decrease by 20 million bushels. C) Imports will decrease by 60 million bushels. D) Imports will not change after the tariff.arrow_forward
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