Macroeconomics (7th Edition)
7th Edition
ISBN: 9780134738314
Author: R. Glenn Hubbard, Anthony Patrick O'Brien
Publisher: PEARSON
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Question
Chapter 7, Problem 7.4.6PA
To determine
Banning imported goods versus tariffs.
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The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20 and the
equilibrium quantity is 3 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the
president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of
$16. The number of T-shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1
million. If the domestic demand curve and domestic supply are both linear, the resulting increase in the total surplus in the
Textilian T-shirt market is about
Zero dollars
$6 million
$14 million)
$4 million
$12 million
$8 million
Georgia and Moldova are famous for their quality of wine and the United Kingdom decides to
start importing from them. There is an 5£ tariff on imported wine. Considering the graph
below, where does the UK buy its wine from and how much does it cost on the domestic
market?
Price per bottle
£10
£7
Moldovan price
£5
Georgian price
UK demand for imported wine
Quantity
(millions of bottles per year)
10
15
22
Suppose the UK joins a trade bloc with Moldova and maintains its 5£ tariff on wine from
outside the bloc.
a) What will the new domestic price be?
b) How much do consumers gain/lose?
c) How about the government?
d) Is there trade creation or trade dıversion or both?
e) How much does the UK gain/lose?
Use the Graph below to answer the questions about International Trade:
Price
P1
P2
P3
A
B
D
F
с
E
D
-Quantity
a. At equilibrium, what area represents Consumer Surplus? Blank 1 and Blank 2.
b. At equilibrium, what area represents Producer Surplus? Blank 3 and Blank 4.
c. Which Price Level would make this country become an importer of this good? Blank 5
d. Which Price Level would make this country become an exporter of this good? Blank 6
Chapter 7 Solutions
Macroeconomics (7th Edition)
Ch. 7 - Prob. 7.1.1RQCh. 7 - Prob. 7.1.2RQCh. 7 - Prob. 7.1.3PACh. 7 - Prob. 7.1.4PACh. 7 - Prob. 7.1.5PACh. 7 - Prob. 7.2.1RQCh. 7 - Prob. 7.2.2RQCh. 7 - Prob. 7.2.3PACh. 7 - Prob. 7.2.4PACh. 7 - Prob. 7.2.5PA
Ch. 7 - Prob. 7.2.6PACh. 7 - Prob. 7.2.7PACh. 7 - Prob. 7.2.8PACh. 7 - Prob. 7.2.9PACh. 7 - Prob. 7.3.1RQCh. 7 - Prob. 7.3.2RQCh. 7 - Prob. 7.3.3RQCh. 7 - Prob. 7.3.4RQCh. 7 - Prob. 7.3.5PACh. 7 - Prob. 7.3.6PACh. 7 - Prob. 7.3.7PACh. 7 - Prob. 7.3.8PACh. 7 - Prob. 7.3.9PACh. 7 - Prob. 7.3.10PACh. 7 - Prob. 7.3.11PACh. 7 - Prob. 7.3.12PACh. 7 - Prob. 7.3.13PACh. 7 - Prob. 7.4.1RQCh. 7 - Prob. 7.4.2RQCh. 7 - Prob. 7.4.3PACh. 7 - Prob. 7.4.4PACh. 7 - Prob. 7.4.5PACh. 7 - Prob. 7.4.6PACh. 7 - Prob. 7.4.7PACh. 7 - Prob. 7.4.8PACh. 7 - Prob. 7.4.9PACh. 7 - Prob. 7.4.10PACh. 7 - Prob. 7.4.11PACh. 7 - Prob. 7.4.12PACh. 7 - Prob. 7.4.13PACh. 7 - Prob. 7.4.14PACh. 7 - Prob. 7.5.1RQCh. 7 - Prob. 7.5.2RQCh. 7 - Prob. 7.5.3RQCh. 7 - Prob. 7.5.4PACh. 7 - Prob. 7.5.5PACh. 7 - Prob. 7.5.6PACh. 7 - Prob. 7.5.7PACh. 7 - Prob. 7.5.8PACh. 7 - Prob. 7.5.9PACh. 7 - Prob. 7.5.10PACh. 7 - Prob. 7.1CTECh. 7 - Prob. 7.2CTECh. 7 - Prob. 7.3CTE
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Similar questions
- Explain why high tariffs have a negative impact on a country's economy.arrow_forwardThe nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $20, and the equilibrium quantity is 3 million T-shirts. After reading Adam Smith’s The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market prices of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 4 million, while the number of T-shirts produced declines to 1 million. Illustrate the situation just described in a graph. Your graph should show all the numbers. Calculate the change in consumer surplus, producer surplus, and total surplus that results from opening trade. (Hint: Recall that the area of a triangle is ½ x base x height.)arrow_forwardThe world has two countries, A and Z, which each produce two products, gadgets and whizbangs. Without world trade, the domestic price of gadgets in A is lower than the price of gadgets in Z. We can say that Country Z has a comparative advantage in gadgets and should be exporting them. Country Z should specialize in producing gadgets. Country A has a comparative advantage in gadgets and should be exporting them. Country A has a comparative advantage in whizbangs and should be importing them.arrow_forward
- The world price of wine is below the price that would prevail in Canada in the absence of trade. Assume that Canadian imports of wine are a small part of total world wine production. The following graph shows the Canadian market for wine under free trade. Use the green triangle (triangle symbol) to shade consumer surplus when Canada is open to trade. Then use the purple triangle (diamond symbol) to shade producer surplus in this case. Price of Wine Domestic Demand Quantity of Wine Domestic Supply World Price Consumer Surplus Producer Surplus (?)arrow_forwardWhich scenario describes the operation of a tariff? Angola opens up trade with the world corn market and decides to maintain its previous market price. Consumers in Turkey, who pay $4 per cup of tea, demand that the government open up trade with the world market because they know the world price is $2 per cup. Ireland taxes the import of potatoes in order to keep domestic farmers in business. Norway becomes an exporter of fireworks after it opens up trade with the world market and realizes its market price is lower than the world price. Which is NOT an effect of a tariff? deadweight loss a domestic market price above world market price Activate Windows Go to Settings ho activate Win increased demand decreased importsarrow_forwardThe following figure represents a small country imposing a tariff against the imports of a good. The two horizontal line are the world price(pw) and the world price with tariffs (pw+t). The other two curves are the Home Supply Curve(upward slopping) and the Home Demand Curve(downward slopping). About this picture, what is true? 120 100 Price 60 80 60 00 40 30 20 Home Country 10 0 40 80 120 140 160 Demand Curve Supply Curve Pw Pw+tarrow_forward
- The nation of textilia Does not allow imports of clothing. In it’s equilibrium Without trade, a T-shirt cost $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith’s ‘The wealth of Nations’ While on vacation, the president decides to open the textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in textilia arises to 8 million, while the number of T-shirts produced declines to 2 million.arrow_forwardWhat are tariffs? Why do governments impose tariffs on imported goods?arrow_forwardKazakhstan is an apple producer, as well as an importer of apples. Suppose the following graph shows Kazakhstan's domestic market for apples, where Sx is the supply curve and Dx is the demand curve. The free trade world price of apples (Pw) is $200 per ton. Suppose Kazakhstan's government restricts imports of apples to 120,000 tons. The world price of apples is not affected by the quota. Analyze the effects of the quota on Kazakhstan's welfare. On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to indicate the new price of apples with a quota of 120,000 apples. PRICE (Dollars perton) 1000 900 800 700 000 500 400 300 200 -- 100 D 0 30 00 90 120 160 Sk 180 210 240 270 300 5x+Q -- Price with Quota Change in PS Quota Rents DWLarrow_forward
- In reference to tariffs, What is the reason that U.S. imposes tariffs? why the U.S. imposes tariffs on imports?arrow_forwardSuppose Russia can produce automobiles relatively cheaply, but they have poor gas mileage and create a great deal of air pollution. The U.S. government, concerned about the quality of air, would like to see fewer Russian automobiles and more cleaner-running American automobiles on the road. What is the nature of the market failure that would justify the U.S. government taking some action against the importation of Russian automobiles? Explain why imposing a tariff is a second-best policy to employ in this case and what policy choice would be more efficient if: i) US carries out its own solution; ii) the two countries governments cooperate.arrow_forwardA small country imports T-shirts. With free trade at a world price of $10, domestic production is 10 million T-shirts and domestic consumption is 42 million T-shirts. The country's government now decides to impose a quota to limit T-shirt imports to 20 million per year. With the import quota in place, the domestic price rises to $12 per T- shirt and domestic production rises to 15 million T-shirts per year. The quota on T- shirts causes domestic consumers to A) gain $7 million. B) lose $7 million. C) lose $70 million. D) lose $77 millionarrow_forward
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