Let’s apply the general equilibrium set up to discuss the on-going trade war between the U.S. and China. Draw a PPF for China to show the production possibilities of ‘DVD players’ and ‘solar panels’. Label all the curves, axes and lines appropriately.Think that both China and the U.S. are consumers of ‘DVD player’ and ‘solar panels’. Modify the graph to show the competitive equilibrium in both production and consumption [using Edgeworth box] for the two countries.Tariff on ‘solar panels’ imposed by the U.S. increases the supply price. Assuming that the PPF also represents the supply, show on the graph you have drawn the impact of tariff on the equilibrium in production and consumption [tariff affects consumption through production] in the two countries. Explain your answer.

General equilibrium (GE) theory mainly focuses on determining the behavior of demand (D), supply…

Answered: Let’s apply the general equilibrium set…

ENGR.ECONOMIC ANALYSIS

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Chapter1: Making Economics Decisions

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Let’s apply the general equilibrium set up to discuss the on-going trade war between the U.S. and China.

Draw a PPF for China to show the production possibilities of ‘DVD players’ and ‘solar panels’. Label all the curves, axes and lines appropriately.
Think that both China and the U.S. are consumers of ‘DVD player’ and ‘solar panels’. Modify the graph to show the competitive equilibrium in both production and consumption [using Edgeworth box] for the two countries.
Tariff on ‘solar panels’ imposed by the U.S. increases the supply price. Assuming that the PPF also represents the supply, show on the graph you have drawn the impact of tariff on the equilibrium in production and consumption [tariff affects consumption through production] in the two countries. Explain your answer.

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