ECON 214 Problem Set 12 solutions complete answers

ECON 214 Problem Set 12 solutions complete answers 

 

Just put your values given and automatically provide answers for you!

 

Assume that originally U.S. GDP is $20 trillion, but that the economy is closed and there are no imports or exports. The nation of Neverland begins selling high-quality washing machines in the United States but charges a very low price—say, $100 each. Assume that U.S. consumers use this opportunity to buy washing machines from Neverland instead of U.S.-produced washing machines, and that spending on other U.S. goods does not change.

 

If Bursia exports $50 billion in goods to Karazakistan, and Bursia imports $33 billion of goods from Karazakistan , what is the goods trade balance for Bursia?

 

If Bursia exports $35 billion in services to Karazakistan, and imports $40 billion of services from Karazakistan, what is the services trade balance for Bursia?

 

What is the overall balance of trade for Bursia if it exports $35 billion in services and $50 billion in goods while importing $40 billion in services and $33 billion in goods?

 

The United States has imposed a tariff of 38% on radial car tire imports from China. The tariff caused imports of tires to drop precipitously after only a few months. Additionally, the price of tires rose significantly after only a few months.

 

England and Japan both produce pairs of shoes and beer. The table below lists production possibilities per worker in each country (e.g., one worker in England produces 15 pairs of shoes or 30 cases of beer).

 

Question 1

 

The graph shows the relationship between supply and domestic demand for small, fuel-efficient SUVs under several conditions: with no imports, the supply is entirely domestic (Sdom); with free trade, domestic suppliers must compete with foreign ones (Sfree); and with a tariff of $4000 per imported SUV, there is foreign competition but less competition than there is with free trade (Starf).

 

Use the area tool to outline the region of the graph that represents government revenue from tariffs. 

 

What quota should the government set on SUV imports to achieve the same protective effect for domestic producers, but without collecting tariffs?

 

Question 2

 

Consider the following table for the neighboring nations of Quahog and Pawnee. Assume that the opportunity cost of producing each good is constant, and give all answers to one decimal if necessary.

 

What is the opportunity cost of producing 1 meatball in Quahog?   

 

What is the opportunity cost of producing 1 clam in Quahog?  

 

What is the opportunity cost of producing 1 meatball in Pawnee?  

 

What is the opportunity cost of producing 1 clam in Pawnee?  

 

Which nation has a comparative advantage in producing meatballs? 

 

Which nation has a comparative advantage in producing clams? 

 

Question 3

 

The table below provides some trade data for the United States and Mexico. Use the information in the table to answer the questions that follow. All numbers are in billions of U.S. dollars.

 

The U.S. trade balance in goods is equal to  

 

The U.S. trade balance in services is equal to    

 

The overall trade balance for the United States is equal to   

 

Question 4

 

The graph below shows the market for widgets in country Z if there are no imports allowed. Drag the appropriate curve in the correct direction to show the change that would occur in country Z if imports of widgets were allowed.

 

Question 5

 

Suppose that the comparative cost ratios of two products—mangoes and sardines—are as follows in the hypothetical nations of Mangolia and Sardinia:

 

In what product should each nation specialize?

 

Would a trade of 2 mangoes = 3 cans of sardines be acceptable to both nations?

 

Question 6

 

This table presents daily production possibilities for typical workers in China and in the United States, assuming these are the only goods produced in both countries.

 

What are the opportunity costs of food production for both China and the United States?

 

Which nation has a comparative advantage in food production? Which nation has a comparative advantage in textile production?

 

Question 7

 

Although there are clear benefits to free trade, governments impose tariffs to protect domestic industries. The figure below illustrates the effects of a per-unit tariff placed on shoes. Without trade, the equilibrium domestic price of a pair of shoes is $140. With free trade, the domestic price of a pair of shoes falls to the world price of $100. If the government imposes a tariff of $20, the domestic price increases to $120. Use the information in the figure to answer the questions that follow. 

 

When there is no tariff,        pairs of shoes are imported.

 

With the tariff,        pairs of shoes are imported.

 

With the tariff, the number of domestically produced shoes increases by

 

Area(s)        represents the increase in producer surplus due to the tariff.

 

As a result of the tariff, the government collects

 

Area(s)        represents the deadweight loss created by the tariff.

 

Question 8

 

Although there are clear benefits to free trade, governments impose quotas to protect domestic industries. Import quotas are limits on the quantity of products that can be imported into a country. The figure below illustrates the effects of a quota placed on shoes. Without trade, the equilibrium domestic price of a pair of shoes is $140. With free trade, the domestic price of a pair of shoes falls to the world price of $100. If the government imposes an import quota, the domestic price increases to $120. Use the information in the figure to answer the questions that follow.

 

When there is no quota,        pairs of shoes are imported.

 

With the quota,         pairs of shoes are imported.

 

With the quota, the number of domestically produced shoes increases by

 

Area(s)        represents the increase in producer surplus due to the quota.

 

Area(s)        represents the deadweight loss created by the quota.

 

Question 9

 

England and Japan both produce pairs of shoes and beer. The table below lists production possibilities per worker in each country (e.g., one worker in England produces 15 pairs of shoes or 45 cases of beer).

 

Which nation has an absolute advantage in the production of pairs of shoes?

 

Which nation has an absolute advantage in beer production?

 

Which nation has a comparative advantage in the production of pairs of shoes?

 

Which nation has a comparative advantage in beer production?

 

Question 10

 

The United States has imposed a tariff of 35% on radial car tire imports from China. The tariff caused imports of tires to drop precipitously after only a few months. Additionally, the price of tires rose significantly after only a few months.

 

Who benefited from this tariff?

 

Now suppose that the United States increases the tariff to 75% on radial car tire imports from China. Which of the following is likely to occur in the United States?

 

Question 11

 

This table presents daily production possibilities for a typical worker in Ireland and in Scotland, assuming these are the only goods produced in both countries.

 

The opportunity cost of producing 1 unit of wool hats is        units of whiskey in Ireland and        units of whiskey in Scotland.

 

has a comparative advantage in wool hats.

 

Suppose that Ireland produces 6 units of wool hats and 5 units of whiskey when it has closed borders and does not trade with Scotland. If Ireland opens its borders and has free trade with Scotland, it will produce        units of whiskey.

 

Question 12

 

The following questions compare the trade balances of two fictional nations: Bursia and its only trade partner, Karazakistan.

 

If Bursia exports $57 billion in goods to Karazakistan, and Bursia imports $40 billion of goods from Karazakistan , what is the goods trade balance for Bursia?

 

What is the best way to describe Bursia's goods trade balance?

 

If Bursia exports $42 billion in services to Karazakistan, and imports $47 billion of services from Karazakistan, what is the services trade balance for Bursia?

 

What is the best way to describe Bursia's services trade balance?

 

What is the overall balance of trade for Bursia if it exports $42 billion in services and $57 billion in goods while importing $47 billion in services and $40 billion in goods?

 

What is the best way to describe Bursia's overall trade balance?

 

Question 13

 

The graph shows the relationship between supply and domestic demand for X-ray machines under two conditions: with no imports the supply is entirely domestic (Sdom), and with free trade domestic suppliers must compete with foreign ones (Sfree).

 

Suppose the government decides to impose an import quota (limit) of 3,500 machines. Use the area tool and outline the region of the graph that represents the increase in domestic producer surplus that results from the import quota. 

 

What is the dollar value of the increase in the domestic producer surplus, as a result of the quota?

 

The domestic producer surplus increases by

 

Question 14

 

Rawtonia is a country with an economy dominated by the agricultural sector. It could produce as many as 14 million bales of raw cotton per year, if it devoted all its resources to raw cotton production. But, instead, the government, which controls the economy quite tightly, chooses to produce 7 million bales of raw cotton and 2 million rolls of finished cotton cloth.

 

Use the straight-line tool to draw Rawtonia's production possibilities frontier. Assume that all resources are being used efficiently.

 

Suppose that Rawtonia were to enage in trade with Finishia, a country whose economy is more industry-based and, therefore, has a comparative advantage in the production of cotton cloth. What kind of a trading ratio would Rawtonia seek when establishing a trade relationship with Finishia?

 

Rawtonia would want to export a        of        bales of raw cotton for every 1 roll of finished cloth it imported from Finishia. 

 

Question 15

 

Suppose that the United States and Canada both produce only two products, televisions and food. The United States can produce 100 televisions a day, 150 pounds of food a day, or any combination in between. (For example, the United States could produce 100 televisions and no food, 50 televisions and 75 pounds of food, or 150 pounds of food and no televisions.) Canada can produce 300 televisions a day, 330 pounds of food a day, or any combination in between.

 

What is the United States’ opportunity cost of producing 1 pound of food?

 

Which country has a comparative advantage in producing food and which country has a comparative advantage in producing televisions?

 

Question 16

 

Suppose that the United States and Canada both produce only two products: televisions and food. Their maximum output of each good and their opportunity costs are shown in this table.

 

Their opportunity costs are shown in this table.

 

Which of these trades would make both the United States and Canada better off?

 

Question 17

 

Let’s think about how imports affect official GDP statistics. Remember that GDP is computed as follows:

 

Assume that originally U.S. GDP is $10 trillion, but that the economy is closed and there are no imports or exports. The nation of Neverland begins selling high-quality yard tractors in the United States but charges a very low price—say, $70 each. Assume that U.S. consumers use this opportunity to buy yard tractors from Neverland instead of U.S.-produced yard tractors, and that spending on other U.S. goods does not change.

 

What happens to U.S. GDP going forward?

 

Is the increase in imports a positive or negative development for the United States?