TEA (Millions of pounds) 48 42 38 30 24 18 12 6 PPF Maldonia (?) TEA (Millions of pounds) 48 42 38 PPF 30 24 18 12 6 18, 9 A Sylvania 0 0 0 6 12 18 24 30 38 42 48 0 8 12 18 24 30 38 42 48 GRAIN (Millions of pounds) GRAIN (Millions of pounds) (?) Maldonia has a comparative advantage in the production of production of most the two countries can produce is , while Sylvania has a comparative advantage in the . If each fully specializes (that is, produces only the good for which each has a comparative advantage), the million pounds of grain and million pounds of tea. Suppose that Maldonia and Sylvania specialize and open up to international trade, and the terms of trade in the world market are 1 pound of grain for 1 pound of tea. That is, Maldonia is willing to sell Sylvania 1 pound of grain in exchange for 1 pound of tea, and Sylvania is willing to sell Maldonia 1 pound of tea in exchange for 1 pound of grain. The countries decide to exchange 12 million pounds of grain for 12 million pounds of tea.

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Price (dollars per ton) 1,000 800 600 400 200 0 1 2 3 4 5 D 6 Steel (millions of tons per year) The figure shows the market for steel in the United States. If the world price for a ton of steel is $200 per ton, how much steel does the United States import? Suppose the United States imposes a tariff of $400 per ton of steel. With this tariff, how much steel does the United States import? If it is possible to calculate the amount of the deadweight loss from the $400 per ton tariff, what is the amount? If it is not possible, explain why it is not possible to calculate it. Next suppose the United States imposes a tariff of only $200 per ton of steel. With this tariff, how much steel does the United States import? How much revenue does the government collect from this tariff? Finally, suppose that instead of a tariff the United States imposes a quota of 2 million tons of steel per year. Illustrate how the market changes with this quota. With the quota, what is the price of steel in the…

PRICE (Dollars per ton) 865 Domestic Demand 830 795 760 725 690 655 620 585 550 515 7 0 40 80 Domestic Supply PW 120 160 200 240 280 320 360 400 QUANTITY (Tons of oranges) If Honduras is open to international trade in oranges without any restrictions, it will import A tariff set at this level would raise $ Suppose the Honduran government wants to reduce imports to exactly 160 tons of oranges to help domestic producers. A tariff of $ will achieve this. tons of oranges. in revenue for the Honduran government. per ton