PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
7th Edition
ISBN: 9781260110920
Author: Frank
Publisher: MCG
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Chapter 16, Problem 7RQ
To determine
Describe the effects of quota on imported automobiles in the domestic market.
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Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel.
Because this country exports steel, the world price is represented by(p1 or p2) .
Suppose that a “pro-trade” government decides to subsidize the export of steel by paying $10 for each ton sold abroad.
With this export subsidy, the price paid by domestic consumers is $______
per ton, and the price received by domestic producers is$_______per ton. The quantity of steel consumed by domestic consumers (reamins unchanged, decrease, and increase) , the quantity of steel produced by domestic producers (reamins unchanged, decrease, and increase) , and the quantity of steel exported (reamins unchanged, decrease, and increase) .
True or False: With the export subsidy, this country will start importing steel from abroad.
Under the export subsidy, consumer surplus is…
< Question 73 of 75
The automobile industry in Macroland successfully lobbies for import quotas that result in automobile prices that are $1,000
higher than before the quotas. Increased sales of automobiles produced in Macroland protect the jobs of 20,000 automobile
workers. What is an additional consequence of the quotas that is not as attractive for Macroland's economy?
Automobile producers in other countries will reduce the price of their cars to offset the higher prices required by the
quotas.
O Each of Macroland's citizens who buys a car will have $1,000 less to spend on other products, leading to reduced sales
and fewer jobs in other industries.
The government will lose tax revenue.
Consumers will buy more cars than before, pushing the automobile market out of equilibrium.
Consider a small country. The domestic (home) demand is Qd = 120−3P and supply is Qs = 2P −20 whereQs and Qd are the quantity supplied and demanded, respectively, and P is the price per unit.A) Find the equilibrium price and quantity when the domestic market is closed to international trade.Now, suppose the country opens up to international trade, and the world price is $20 per unit.B) Find the new equilibrium price, domestic quantity supplied and demanded, and quantity imported.C) Suppose the domestic government imposes a tariff of $4 per unit. Find the equilibrium price, domesticquantity supplied and demanded, quantity imported, and tax revenue collected.D) Now, suppose the government impose a quota that limits the quantity of imports to 20 units. Find thenew equilibrium price, domestic quantity supplied and demanded, and quantity imported.E) Calculate Consumer surplus, producer surplus, and total surplus, with free tradeF) Calculate Consumer surplus, producer surplus, tax revenue,…
Chapter 16 Solutions
PRINCIPLES OF MACROECONOMICS(LOOSELEAF)
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