Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 9, Problem 5CQQ
To determine
The policy which hurts consumers and helps producers and increases trade.
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Use 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 6
Georgia and Moldova are famous for their quality of wine and the United Kingdom decides to
start importing from them. There is an 5£ tariff on imported wine. Considering the graph
below, where does the UK buy its wine from and how much does it cost on the domestic
market?
Price per bottle
£10
£7
Moldovan price
£5
Georgian price
UK demand for imported wine
Quantity
(millions of bottles per year)
10
15
22
Suppose the UK joins a trade bloc with Moldova and maintains its 5£ tariff on wine from
outside the bloc.
a) What will the new domestic price be?
b) How much do consumers gain/lose?
c) How about the government?
d) Is there trade creation or trade dıversion or both?
e) How much does the UK gain/lose?
The 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 million
Chapter 9 Solutions
Essentials of Economics (MindTap Course List)
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Similar questions
- Write short notes on International Trade theoriesarrow_forwardWhich of the following is NOT a law that impacted U.S. tariffs? A. Food, Drug, and Cosmetic Act B. Smoot-Hawley Act C. McKinley Act D. Fordney-McCumber Actarrow_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
- With free trade, for a world price of $4 per wrench, Spain is importing _________wrenches. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, Spain produces ____________ and imports __________wrenches. If the world price is $4 per wrench, and the government of Spain imposes a tariff of $2, how much tariff revenue will the Spain’s government collect? _____arrow_forwardIn reference to tariffs, What is the reason that U.S. imposes tariffs? why the U.S. imposes tariffs on imports?arrow_forwardPrice P1 P3 Y V P2 U D Quantity Q1 Q4 Qs Q3 Figure 4 Domestic market for a good Figure 4 shows a country's domestic market for a good. There is perfect competition. The supply curve, S, is the domestic producers' supply curve for the good. D is the domestic consumers' demand curve. With free trade, the price in the domestic economy equals the world price, P2. However the domestic government has imposed a tariff on imports that has raised the price of the good in the domestic economy from P2 to P3. Which area or areas of the diagram show the government's tariff revenue? Select one answer. Select one: O Z O w plus Y ох O X plus Z Narrow_forward
- The 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_forwardIdentify and explain who will make and lose money from this tariff. Identify the people and organizations that will benefit from the tariff. Identify the people and organizations that will suffer because of the tariff. How will the tariff impact your company?arrow_forwardIf the U.S. did not trade what price would the good cost? If the world price was $200 what quantity would the U.S. produce? What quantity would be imported. What is consumer surplus at the world price? Producer surplus at the world price? Who benefits from the free trade and who gets hurt If the U.S. government puts a tariff on the good so now the price is $300 who benefits, who is hurt? What quantity will U.S. producers now produce? What happens to consumer surplus from $200 to $300? What does producer surplus do with the price going from $200 to $300? What does the government gain with the tariff? Who benefits from free trade overall? Who benefits from trade restrictions? Why is a tariff the most used trade restriction?arrow_forward
- What are tariffs? How do tariffs affect consumers and producers well- being?arrow_forwardQUESTION 4 In the graph below, the quantity of imports before and after imposing a $2 tariff would be Domestic Supply $10 $8 $6 0 0 0 0 с 50, 40 50, 20 40, 30 30, 10 30, 20 DEFO 20 30 & 9 World P Domestic D Q (millions of towels) QUESTION 5 If Mexico subsidizes its textiles, making it impossible for U.S. producers to compete, the appropriate response is for the U.S. to enact an equal subsidy so that there is a level playing field of competition in text U.S. economic well-being would be maximized by purchasing subsidized textiles from Mexico. a tariff on textiles would improve economic well-being in the U.S. None of the above is a true statement. the appropriate response is to threaten to retaliate with an equal subsidy and enact it if the Mexicans do not reduce their subarrow_forwardWhat is the effect of placing tariffs on products imported into the U.S. from other countries? Are there any problems with this?arrow_forward
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