Economics QUESTION 28 The following figure shows the demand and supply schedules for an import good in a small open economy with perfectly competitive markets. PFT. PC. and Pp are the free-trade, consumer, and producer prices respectively. The country first imposes a consumption tax t on the import good, and then a production subsidy s on the same, such that s t. P,=Pe P Q S, S, D, D, With the tax and subsidy in place, the government revenue from this tax government expenditure on the subsidy by O a. falls short of, area b O b.exceeds; area c Oc. exceeds; area b+d O d. falls short of; area d O e. exceeds; area a

Economics QUESTION 28 The following figure shows the demand and supply schedules for an import good in a small open economy with perfectly competitive markets. PFT. PC. and Pp are the free-trade, consumer, and producer prices respectively. The country first imposes a consumption tax t on the import good, and then a production subsidy s on the same, such that s t. P,=Pe P Q S, S, D, D, With the tax and subsidy in place, the government revenue from this tax government expenditure on the subsidy by O a. falls short of, area b O b.exceeds; area c Oc. exceeds; area b+d O d. falls short of; area d O e. exceeds; area a

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter28: International Trade

Section: Chapter Questions

Problem 11P

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Assume two countries, Thailand (T) and Japan (J), have one good: cameras. The demand (d) and supply (s) for cameras In Thailand and Japan is described by the following functions: QsT=-5+14P QsJ=-10+14P QdT=60-P QdJ=80-P P is the price measured in a common currency used in both countries, such as the Thai Baht. Compute the equilibrium price (P) and quantities in each country without trade. Now assume that free trade occurs. The free-trade price goes to 56.36 Baht. Who exports and Imports cameras and in what quantities?
Explain how a subsidy on agricultural goods like sugar adversely affects the income of foreign producers of imported sugar.
How would direct subsidies to key industries be preferable to tariffs or quotas?
Trade has income distribution effects. For example, suppose that because of a government-negotiated reduction in trade barriers, trade between Germany and the Czech Republic increases. Germany sells house paint to the Czech Republic. The Czech Republic sells alarm clocks to Germany. Would you expect this pattern of trade to increase or decrease jobs and wages in the paint industry in Germany? The alarm clock industry in Germany? The paint industry in Czech Republic? The alarm clock industry in Czech Republic? What has to happen for there to be no increase in total unemployment in both countries?
Explain how a tariff reduction causes an Increase in the equilibrium quantity of imports and a decrease in the equilibrium price. Hint: Consider the Work It Out Effects of Trade Barriers.