Principles of microeconomics chapter 7 problem solutions PDF

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Principles of microeconomics chapter 7 problem solutions. Principles of microeconomics chapter 7 problem solutions. Principles of microeconomics chapter 7 problem solutions. Principles of microeconomics chapter 7 problem solutions....

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Vancouver School of Economics UBC Chapter #7 (International Trade) 1. If a nation has a domestic price of steel lower than the world price, then this nation A. has a comparative advantage in producing steel and would become a steel exporter if it opened up trade. B. has a comparative advantage in producing steel and would become a steel importer if it opened up trade. C. has a lower opportunity cost in producing steel than its trading partners. D. A and C. 2. When a nation opens itself to trade and becomes an importer of a good, A. producer surplus decreases, but consumer surplus and total surplus both increase. B. producer surplus decreases, consumer surplus increases, and so the impact on total surplus is ambiguous. C. producer surplus and total surplus increase, but consumer surplus decreases. D. producer surplus, consumer surplus, and total surplus all increase. Consumers can import at a lower Pw and hence gains. Producers lose as consumers buy foreign goods. However country as a whole always gains with trade and so TS increases (not CS gain > PS loss). 3. The following table gives domestic D and S for smartphone. The world price = $350. Price ($) Demand Supply 300 40 15 350 30 20 400 20 25 450 10 30 500 0 35 A. This nation will import 10 smartphones. (Note at P = 350, D = 30 but S = 20) B. This nation will import 30 smartphones. C. This nation will import 20 smartphones. D. There will be no trade. 4. If world price = $400, Price ($) Demand 300 40 350 30 400 20 450 10 500 0 A. The country imports 5.

Supply 15 20 25 30 35

B. The country imports 20. C. The country exports 5. D. The country exports 20. 5. If world price = $400, domestic CS =

A. B. C. D.

Price ($) 300 350 400 450 500 500; 2450. 1000; 1000. 500; 1500. 1000; 2250.

and PS =

Demand 40 30 20 10 0

.

Supply 10 20 30 40 50

If we assume Linear D and S.

domestic S

500 A 400

CS = A PS = B+D+C

C B

300

D

domestic D

250 10

20

30

40

Extra Questions: 1 )If the no trade price of good X is lower in country A than in country B, A. country B has an absolute advantage in the production of good X. B. country B has a comparative advantage in the production of good X. C. country A has an absolute advantage in the production of good X. D. country A has a comparative advantage in the production of good X. Domestic no trade P will be lower when the domestic country’s opportunity cost of production of that good is lower.

2 )In the graph, D and S are Canadian domestic demand and supply curves. The world price is $20. If the economy moves from no trade to international trade, consumer surplus in Canada by .

A) increases; $320 million (∆CS = (28-20)* (32+48)/2) B) decreases; $192 million C) increases; $192 million D) decreases; $320 million (total surplus increases by the area of the triangle between P = 28 and 20 and Q = 16 and 48) 3 )The world price of a pair of shoes is $20. When Canada opens up for free international trade, Canadian consumer surplus and Canadian producer surplus .

A. B. C. D.

increases by area A + B; decreases by area B increases by area B; decreases by area B increases by area A; decreases by area B decreases by area A + B; increases by area B

4 )The graph shows the demand for shoes in Brazil, DB, the supply of shoes produced in Brazil, SB, and the market equilibrium in Brazil when it does not trade internationally. If the world price of a pair of shoes is $20 and Brazil opens up and trades internationally, producer surplus in Brazil and consumer surplus in Brazil .

A. B. C. D.

increases by area C + D; decreases by area C increases by area C; decreases by area C and a deadweight loss equal to area D arises increases by area D; decreases by area D decreases by area C; increases by area C + D

5 )When a country becomes an importer of a good, which of the following does not occur in the market for this good in the importing country? A. Deadweight loss decreases. B. Consumer surplus increases. C. Producer surplus decreases. D. Workers in the domestic industry lose. E. Total surplus increases. (In this case, before trade also there is NO DWL. After trade the country gains not because DWL decreases but because CS expands)

6 )The supply of peanuts in Canada is made up of Canadian grown peanuts and imported peanuts. Initially, Canada engages in free trade in the peanut market. Then Canada puts a quota on peanut imports. The graph shows the Canadian market for peanuts when the Canadian government puts a quota on peanut imports. The Canadian consumer surplus that is redistributed to Canadian producers is and the quota creates a deadweight loss equal to .

A. B. C. D.

area B + C + D + E; zero area B + C + F; area D area B; area D + E area B; area C + E

(D+F is made by Canadian importers who can buy at world P =10 resale in Canada at a higher P. In this example, if tariff >= 15-10 = 5, imports will be completely eliminated)...