Economics (Irwin Economics)
21st Edition
ISBN: 9781259723223
Author: Campbell R. McConnell, Stanley L. Brue, Sean Masaki Flynn Dr.
Publisher: McGraw-Hill Education
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Chapter 40, Problem 7DQ
To determine
Tariff, infant industry protection, and diversification of stability
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25. If the free trade price is IP and this country imposes a trade tariff of $6, the loss to the economy as a result of this tariff is represented by
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3. The following hypothetical production
possibilities tables are for China and the
United States. Assume that before
specialization and trade, the optimal
product mix for China is alternative B
and for the United States is alternative
U. LO20.2
a. Are comparative-cost conditions such
that
the
two
countries
should
specialize? If so, what product should
each produce?
b. What is the total gain in apparel and
chemical output that would result
from such specialization?
c. What are the limits of the terms of
trade? Suppose that the actual terms
of trade are 1 unit of apparel for 1 unit
of chemicals and 4 units of apparel for
6 units of chemicals. What are the
gains from specialization and trade for
each nation?
China Production Possibilities
Product
A
D
F
Apparel (in thousands)
30
24
18
12
Chemicals (in tons)
12
18
24
30
U.S. Production Possibilities
Product
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Apparel (in thousands)
hemicals (in tons)
10
8.
4
4
8.
12
16
20
p. 579
Suppose that one country (Country A) subsidizes its exports and the other country (Country B) imposes a "countervailing" tariff that offsets its effect, so that in the end relative prices in the second
country are unchanged. What happens to the terms of trade? What about welfare in the two countries?
O A. From Country A's perspective, world relative supply will increase and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this effect
so Country A will definitely gain and Country B definitely loses.
O B. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will improve its terms of trade. The countervailing tariff exacerbates this
effect so Country A will definitely gain and Country B definitely loses.
C. From Country A's perspective, world relative supply will decrease and world relative demand will increase. This will worsen its terms of trade. The countervailing…
Chapter 40 Solutions
Economics (Irwin Economics)
Ch. 40.2 - Prob. 1QQCh. 40.2 - Prob. 2QQCh. 40.2 - Prob. 3QQCh. 40.2 - Prob. 4QQCh. 40 - Prob. 1DQCh. 40 - Prob. 2DQCh. 40 - Prob. 3DQCh. 40 - Prob. 4DQCh. 40 - Prob. 5DQCh. 40 - Prob. 6DQ
Ch. 40 - Prob. 7DQCh. 40 - Prob. 8DQCh. 40 - Prob. 9DQCh. 40 - Prob. 10DQCh. 40 - Prob. 11DQCh. 40 - Prob. 12DQCh. 40 - Prob. 13DQCh. 40 - Prob. 14DQCh. 40 - Prob. 1RQCh. 40 - Prob. 2RQCh. 40 - Prob. 3RQCh. 40 - Prob. 4RQCh. 40 - Prob. 5RQCh. 40 - Prob. 6RQCh. 40 - Prob. 7RQCh. 40 - Prob. 8RQCh. 40 - Prob. 9RQCh. 40 - Prob. 10RQCh. 40 - Prob. 11RQCh. 40 - Prob. 12RQCh. 40 - Prob. 13RQCh. 40 - Prob. 1PCh. 40 - Prob. 2PCh. 40 - Prob. 3PCh. 40 - Prob. 4P
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- 5. Suppose that the comparative-cost ratios of two products- baby formula and tuna fish-are as follows in the hypotheti- cal nations of Canswicki and Tunata: Canswicki: 1 can baby formula = 2 cans tuna fish 1 can baby formula = 4 cans tuna fish Tunata: In what product should each nation specialize? Explain why terms of trade of 1 can baby formula = would be acceptable to both nations. 25 cans tuna fisharrow_forwardWhen a small country imposes a tariff on an imported good, domestic consumers bear of the statutory burden and of the economic burden of the tariff. O 100%; 0% 50%; 50% 100%; 100% 0%; 100%arrow_forwardAssume that the comparative-cost ratios of two products—baby formula and tuna fish—are as follows in the nations of Canswicki and Tunata: Canswicki: 1 can baby formula ≡ 5 cans tuna fish Tunata: 1 can baby formula ≡ 7 cans tuna fish a. In what product should each nation specialize? Canswicki should produce _____- , and Tunata should produce _____ b. Would the following terms of trade be acceptable to both nations? i. 1 can baby formula ≡ 4 cans tuna fish: yes or no ii. 1 can baby formula ≡ 8 cans tuna fish: yes or no iii. 1 can baby formula ≡ 5.5 cans tuna fish: yes or noarrow_forward
- A small country is facing the following domestic supply curve of a product: S = 200 + 20P, as well as the following domestic demand curve of a product: D = 400 - 20P. It can import it at a world price of 10 per unit. In addition, each unit of production yields a marginal social benefit of 10. The effect on welfare of an import tariff of 6 per unit is $. O -420 O 500 O -480 O 420 O 320 -500 O :180 O -320 480 O 180arrow_forwardWhich of the following statements about foreign trade is correct? Choose an answer: O 1. A good is imported if the world market price for this good is higher than the domestic opportunity costs of producing this good. O 2. A good is exported if the world market price for this good is lower than the domestic opportunity costs of producing this good. 3. The levying of a domestic duty rate on an imported good increases the producer surplus and reduces the domestic consumer surplus. O 4. If a country has an absolute advantage in one good, it also has a comparative advantage in that good. O 5. A particularly productive country can have a comparative advantage in all goods.arrow_forwardPrice (dollars per shirt) 44 40 36 32 28 24 20 16 12 O 8 O 32 million The figure shows the market for shirts in the United States, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. The United States imposes a tariff on imported shirts, $4 per shirt. 24 million S In the figure above, with the tariff the United States imports 8 million D O 16 million 16 24 32 40 48 56 64 Quantity (millions of shirts per year) million shirts per year.arrow_forward
- Assume the United States is a large consumer of steel, able to influence the world price. Its demand and supply schedules are respectively denoted by Dus and Sus in Figure 42. The overall (United States plus world) supply schedule of steel is denoted by Sus.. Figure 4.2. Import Tariff Levied by a Large Country 8 550 475 450 325 0 5 10 O $450, 5 tons, 60 tons, 55 tons O $475, 10 tons, 50 tons, 40 tons O $525, 5 tons, 60 tons, 55 tons 20 O $630, 30 tons, 30 tons, 0 tons 30 40 Consider Figure 4.2. With free trade, the United States achieves market equilibrium at a price of Sus 50 55 Sus W.1 Sus+ w Dus Tons of Steel At this price, of steel are produced by U.S. firms, are bought by U.S. buyers, and are imported.arrow_forwardFigure: Trade 1 Price $200 175 150 Domestic Supply 500 7501,000:1,300 1,150 World Supply + Tariff World Supply Domestic Demand Quantity If the world price for the good in this figure is higher than the domestic price, a move to free international trade means that the domestic economy will become: O either a net importer or a net exporter of the good, but it is impossible to say which. O a net importer of the good. neither a net importer nor a net exporter of the good. a net exporter of the good.arrow_forwardHow many units will the domestic firms produce without trade? How many units will the domestic firms produce without a tariff if the foreign producer can sell the product at a $4 price? How many units will the foreign firms produce / sell if a government tariff of $2.00 is imposed on foreign goods? What will be the total government revenues if a tariff of $2.00 is imposed on foreign goods? What will be the total deadweight losses if a tariff of $2.00 is imposed on foreign goods?arrow_forward
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