Consider countries A, B, and Cc. The distance between A and B is 1600 kilometers and between A and C, it is 700 kilometers. Country A's GDP is approximately equal to $6 trillion, country B $5 trillion, and country C $2 trillion. Use the gravity equation and compute the ratio of the expected volume of trade between A and C over the expected volume of trade between A and B. Assume that the distance elasticity is equal to 1.5.

Consider countries A, B, and Cc. The distance between A and B is 1600 kilometers and between A and C, it is 700 kilometers. Country A's GDP is approximately equal to $6 trillion, country B $5 trillion, and country C $2 trillion. Use the gravity equation and compute the ratio of the expected volume of trade between A and C over the expected volume of trade between A and B. Assume that the distance elasticity is equal to 1.5.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter4: The Aggregate Economy

Section: Chapter Questions

Problem 4E

See similar textbooks

Similar questions

Discuss Trade Income Elasticity.
In August 1990, many countries decided to retaliate against Iraq for invading Kuwait by refuse to trade with Iraq. What would happen to Iraq's terms of trade and volume of trade If Iraq is in the "inelastic" portion of its offer curve ? Please answer the question with explanation and graph and put Iraq's import good on x-axis.
Suppose the world price of oil is $15 per barrel. At that price, the United States imports 400 million barrels daily and consumes 600 million barrels daily. The government then imposes a $5 per barrel tax on oil imports. For every dollar increase in oil prices, domestic consumption decreases by 20 million barrels per day, while domestic production increases by 40 million barrels per day. 1. What will be the new oil price (assuming world supply is perfectly elastic at $15)?
Reciprocal demand depends upon: Select one: a) The price of imports b) A change in economic growth c) The elasticity of demand for another country's production d) The price of exports e) The elasticity of demand for the country's own production
Exporting countries Which of the following will be true, everything else remaining constant, for a country that exports some good? a)The greater the price elasticity of supply for the good in the exporting country, the greater the volume of exports. b) The more that consumers in the exporting country respond to a change in price, the greater will be the gains from trade. b) The smaller the price elasticity of demand and supply in the exporting country, the greater the gains from trade. c) Some domestic suppliers will lose surplus while others will gain surplus. Choose the statements that match the question and briefly explain your reasoning to understand the question better. Thankyou.
Quotas may affect the terms of trade of the country imposing them. The effect of quotas on the terms of tradedepends upon the elasticity of the foreign offer curves. True False
Suppose that a country implements a $20 tariff. Before the tariff, the country was importing 900 units of the good. After the tariff, the country imported 850 units of the good. What is the deadweight loss from the tariff? Assume that domestic supply and demand are linear.
Consider a small country imposing a tariff of $2/unit in imported corn (Policy A). Suppose the country was importing 300 units and this policy resulted in a decline of imports to 250 units. a. Draw the XS and MD before and after the policy is imposed. Label the level of imports. b. Suppose the government decides to double the tariffs and as a result the imports decrease to 200 units (Policy B). Show this on your graph and label the new level of imports. c. Suppose the government adjusts the policy so that there is a tariff of $2/unit is imposed up to a quota of 100 units and then the tariff rate doubles to $4/unit for any imports above that level (Policy C). Show this on your graph and label the new level of imports. d. Under which policy are imports the highest? e. Under which policy is government revenue the highest? f. Under which policy is domestic price the highest? g. Under which policy is world price the highest? h. Can you think of reasons why Policy C may be preferable to a…
The following graph shows the domestic market for oil in the United States, where SDSD is the domestic supply curve, and DDDD is the domestic demand curve. Assume the United States is considered a large nation, meaning that changes in the quantity of its imports due to a tariff influence the world price of oil. Under free trade, the United States faced a total supply schedule of SD+WSD+W, which shows the quantity of oil that both domestic and foreign producers together offer domestic consumers. In this case, the free-trade equilibrium (black plus) occurs at a price of $240 per barrel of oil and a quantity of 9 million barrels. At this price, the United States imports 6 million barrels of oil. Suppose the U.S. government imposes a $60-per-barrel tariff on oil imports.
“Both the import demand curve and export supply curve of a good are functions of domestic price of the good.” Explain the above statement with the help of graphs.
Refer to the graph to answer this question. Based on the Tariff graph, which of the following statements is most true? A. Government revenue is reduced by a tariff. B. A tariff increases consumer surplus. C. A tariff reduces consumer surplus. D. A tariff increases imports.
7 Q. China is known to price its exports differently in international markets compared to price in its domestic market. What would be the economic rational for segmenting markets? What can the importing country do to prevent or retaliate against such pricing?