Answered: a) What is meant by terms of trade? b)…

a) What is meant by terms of trade? b) How does a tariff on imports affect a country's terms of trade. Briefly explain (2-3 sentences expected).

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter3: Interdependence And The Gains From Trade

Section: Chapter Questions

Problem 6PA

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2. The impact of a tariff Consider a hypothetical example of trade in aluminum between the United States and China. For simplicity, assume that China is the only source of U.S. aluminum imports. The following graph shows the U.S. market for aluminum. Note that in the absence of any trade, the market price for aluminum in the United States is $500 per tonne, and the equilibrium quantity is 250 million tonnes per month. Use the green area (triangle symbol) to show U.S. consumer surplus under free trade with China, and use the purple area (diamond symbol) to show U.S. producer surplus under free trade with China. 1000 Domestic Demand Domestic Supply 900 Consumer Surplus 800 700 Producer Surplus 600 500 400 Free Trade Price 300 200 100 200 250 300 350 400 450 500 50 100 150 QUANTITY OF ALUMINUM (Millions of tonnes per month) PRICE (Dollars per tonne)
Q.3 Suppose the following table given below describes the production possibilities of Rice and Cloth for Pakistan and China: Wheat (Kgs/hour) Cloth (Meters/hour) PAKISTAN 5 10 CHINA 10 40 Without trade, what is the relative price of wheat in terms of cloth in Pakistan? What is the price in China? Which country has an absolute advantage in the production of each good? Which country has a comparative advantage in the production of each good? If both countries trade with each other, which good will each export? What is the range of prices at which trade can occur?
2. Assume that Sweden and Norway currently producing and consuming soybeans and coffee. The following table 1 shows the prices of soybeans and coffee for both nations. Table 1: Prices of soybean and coffee Price (per carton) Soybeans (S) Coffee ($) Sweden Norway 64 85 71 82 Based on relative price of coffee, can Norway gain by exporting soybeans? If no, what commodity Norway should export? Briefly explain this scenario by using an appropriate diagram.
Suppose that the United States and Saudi Arabia can each produce two products, oil and personal computers. The labor requirements per unit of output are provided in the table below: Labor Requirements Per Unit of Output Oil Personal Computers United States 10 30 Saudi Arabia 8 4 Calculate the labor and opportunity costs for each good, and then compute each country's absolute and comparative advantage. Use the results to determine what good each country should export and explain your reasoning. 4. What does comparative advantage mean? How do you calculate comparative advantage? 5. In what output(s) does the U.S. have a comparative advantage? Explain using the data from the table. 6. In what output(s) does Saudi Arabia have a comparative advantage? Explain using the data from the table. 7. What product should each country export? Why?
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Because Zambia participates in international trade in the market for soybeans, it will import tons of soybeans. Now suppose the Zambian government decides to impose a tariff of $10 on each imported ton of soybeans. Under the tariff, the price Zambian consumers pay for a ton of soybeans becomes , and Zambia will import tons of soybeans. Use the following graph to show the effects of the $10 tariff
Tricky question. Consider the diagram below, depicting the United States Market for Airplanes (hundreds of jets on the horizontal axis, and millions of dollars on the vertical axis). Suppose around the world, a 2 (million dollar) tariff is placed on United States Airplanes. What will exports of planes now be (round to one significant digit). Tricky question. Consider the diagram below, depicting the United States Market for Airplanes (hundreds of jets on the horizontal axis, and millions of dollars on the vertical axis). Suppose around the world, a 2 (million dollar) tariff is placed on United States Airplanes. Given exports, about how much will United States producers of airplanes wind up paying in tariffs?
5. Welfare effects of a tariff in a small country Suppose Kenya is open to free trade in the world market for wheat. Because of Kenya's small size, the demand for and supply of wheat in Kenya do not affect the world price. The following graph shows the domestic wheat market in Kenya. The world price of wheat is Pw=$250 per ton. On the following graph, use the green triangle (triangle symbols) to shade the area representing consumer's surplus (CS) when the economy is at the free-trade equilibrium. Then, use the purple triangle (diamond symbols) to shade the area representing producers' surplus (PS). PRICE (Dollars per ton) 490 460 430 400 370 340 310 280 250 220 190 + 0 Domestic Demand 5 Domestic Supply 10 15 20 25 30 35 QUANTITY (Thousands of tons of wheat) 40 P 50 If Kenya allows international trade in the market for wheat, it will import Show the effects of the $60 tariff on the following graph. CS PS tons of wheat. Now suppose the Kenyan government decides to impose a tariff of $60…
Attempts: Do No Harm:/1 6. The arguments for restricting trade Suppose there is a policy debate regarding the United States' imposing trade restrictions on imported tires. Read the following scenario and answer the question that follows. Domestic producers of tires send a lobbyist to the U.S. government to request that the government impose trade restrictions on imports of tires. The lobbyist claims that the U.S. tire industry is new and cannot currently compete with foreign firms. However, if trade restrictions were temporarily imposed on tires, the domestic tire industry could mature and adjust and would eventually be able to compete in the world market. Which of the following justifications is the lobbyist using to argue for the trade restriction on tires? O Jobs argument O Unfair-competition argument O Infant-industry argument O Using-protection-as-a-bargaining-chip argument O National-security argument
Suppose that France and Germany both produce wine and cheese. The table below shows combinations of the goods that each country can produce in a day. Germany France Wine (Bottles) Cheese (Pounds) 0 1 2 3 4 8 6 4 2 0 Wine (Bottles) 0 1 2 3 4 5 Cheese (Pounds) 20 16 12 8 4 0 Who has the comparative advantage in producing wine and who has the comparative advantage in producing cheese? O A. Germany has a comparative advantage producing wine and cheese. OB. Neither has a comparative advantage producing wine or cheese. O C. France has a comparative advantage producing cheese and Germany has a comparative advantage producing wine. France has a comparative advantage producing wine and cheese. O D. O E. France has a comparative advantage producing wine and Germany has a comparative advantage producing cheese. Suppose that France is currently producing 1 bottle of wine and 6 pounds of cheese and Germany is currently producing 3 bottles of wine and 8 pounds of cheese. Then, assume instead that…