Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 9, Problem 5PA
Subpart (a):
To determine
The impact of free trade on the country.
Sub part (b):
To determine
The impact of free trade on the country.
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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
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. 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.)
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.
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Principles of Economics, 7th Edition (MindTap Course List)
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