Econ Micro (book Only)
6th Edition
ISBN: 9781337408066
Author: William A. McEachern
Publisher: Cengage Learning
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Question
Chapter 19, Problem 10P
To determine
The arguments supporting the trade restrictions.
Concept Introduction:
Import - A tax levied on the import of goods among nations.
Expert Solution & Answer
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P
* 00
PRICE (Dollars per tonne)
News Analysis: Nailing Down Metal Tariffs
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 50 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.
000
Domestic Demand
Domestic Supply
t: A
006
Consumer Surplus
008
000
Producer Surplus
009
000
Free Trade Price
09
06
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Question 1
Table 1 illustrates the supply and demand schedules for cheeses in Sweden and Norway. On graph
paper, draw the supply and demand schedules for each country.
a.
In the absence of trade, what are the equilibrium price and quantity of cheeses produced in
Sweden and Norway? Which country has the comparative advantage in cheeses?
b. Assume there are no transportation costs. With trade, what price brings about balance in
exports and imports? How many cheeses are traded at this price? How many cheeses are
produced and consumed in each country with trade?
c. Suppose the cost of transporting each cheese from Sweden to Norway is $5. With trade, what is
the impact of the transportation cost on the price of the traded product in each trading nation?
The extent of specialization? The volume of trade?
Table 1
Price
5
10
15
20
25
30
35
40
45
Sweden
Quantity Supplied Quantity Demanded Price
200
400
600
800
1,000
1,200
1,400
1,600
1,800
1,200
1,000
800
600
400
200
5
10
15
20
25
30
35
40
45…
4. Effects of a tariff on international trade
The following graph shows the domestic demand for and supply of maize in Bolivia. The world price (Pw) of maize is $240 per ton and is displayed as
a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one
country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize.
Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.
PRICE (Dollars per ton)
440
415
390
365
340
315
290
265
240
215
190
Domestic Demand
0 10 20
Domestic Supply
30 40 50 60 70
QUANTITY (Tons of maize)
80 90 100
Knowledge Booster
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- Economics A trade expert compares the modern tariffs to the Depression-era Smoot-Hawley tariffs. He says “The economic impact is going to take years to play out." What was the effect of the Smoot- Hawley tariffs on U.S. trade? a) Both imports and exports rose by nearly about the same amount, the trade balance remained about the same, and the total volume of trade increased. b) Both imports and exports fell by nearly about the same amount, the trade balance remained about the same, and the total volume of trade decreased. c) Imports decreased, and the trade balance increased. The total volume of trade was nearly unchanged. d) Imports decreased, and the trade balance was nearly unchanged. The total volume of trade decreased.arrow_forwardQuestion: What Is The Effect Of An Increase In Import Tariff On A Popular Good To Consumers?arrow_forwardPRICE (Dollars per unit of coffee) 70 50 45 15 с B A From the figure it is apparent that F 9 H Domestic Supply Uganda will experience a surplus of coffee if trade is not allowed. G 15 QUANTITY (Units of coffee) Domestic Demand Uganda will experience a shortage of coffee if trade is not allowed. World Price 20 foreign countries have a comparative advantage in producing coffee, relative to Uganda. Uganda has a comparative advantage in producing coffee, relative to the rest of the world.arrow_forward
- PRICE (Dollars per ton) 980 Domestic Demand 930 880 830 780 730 680 630 580 530 480 0 50 Domestic Supply Pw 100 150 200 250 300 350 400 450 500 QUANTITY (Tons of oranges) If Zambia is open to international trade in oranges without any restrictions, it will import A tariff set at this level would raise $ ? Suppose the Zambian government wants to reduce imports to exactly 200 tons of oranges to help domestic producers. A tariff of $ will achieve this. tons of oranges. in revenue for the Zambian government. per tonarrow_forwardPRICE (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 tonarrow_forward6. The arguments for restricting trade Suppose there is a policy proposal to increase trade restrictions on imported microprocessors to the United States. Read the following scenario and answer the question that follows. A congresswoman from a state with several microprocessor factories argues that the government should impose a tariff on microprocessors because they are a necessary input into the production of various weapons. Free trade, she contends, would make the United States overly dependent on foreign countries for the supply of microprocessors and thus, in case of war, unable to make enough weapons to defend itself. Which of the following justifications is the congresswoman using to support their argument in favor of the trade restriction on microprocessors? Using-protection-as-a-bargaining-chip argument O National-security argument O Jobs argument O Unfair-competition argument O Infant-industry argumentarrow_forward
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