Answered: When China's clothing industry expands,…

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter6: Simple Pricing

Section: Chapter Questions

Problem 3MC

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When China's clothing industry expands, the increase in world supply lowers the world price of clothing. Consider the effects this has on both an importer and an exporter of clothing.

Suppose the following graph represents the market for clothing in Cambodia prior to the expansion of China's clothing industry. Cambodia is an ______ of clothing because the world price is the domestic equilibrium price.

Note: You will have to use green points (triangle symbol) and purple points (diamond symbol) to shade the consumer and producer surplus areas on the following graphs. There are two green points and two purple points per graph. Use either one point of both to most accurately indicate the areas. For example, if indicating the consumer surplus requires only one green point, leave the second one on the palette.

Use the green point (triangle symbol) to shade consumer surplus in Cambodia before China's clothing industry expands. Then use the purple point (diamond symbol) to shade producer surplus.

On the following graph, use the green point (triangle symbol) to shade consumer surplus in Cambodia after China's clothing industry expands. Then use the purple point (diamond symbol) to shade producer surplus.

Suppose the following graph represents the market of clothing in Germany prior to the expansion of China's clothing industry. Germany is an _____ of clothing because the world price is_____ the domestic equilibrium price.

Use the green point (triangle symbol) to shade consumer surplus in the Germany before China's clothing industry expands. Then use the purple point (diamond symbol) to shade producer surplus.

Overall,______ countries benefit from the fall in the world price of clothing, while ____ countries are harmed by the price change.

Market for Clothing in Cambodia
Domestic Demand
Consumer Surplus
Domestic Supply
World Price
Producer Surplus
Quantity of Clothing
Price of Clothing

Definition Definition Consumer surplus is the consumers' gain from trade. The consumer surplus is the area below the demand curve but above the equilibrium price, up to the equilibrium quantity. Producer surplus is the producer's gain from trade. The producer surplus is the area above the supply curve but below the equilibrium price, up to the equilibrium quantity. Consumer surplus is represented by Area A and producer surplus is represented by Area B.

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Market for Clothing in CambodiaConsumer SurplusProducer SurplusPrice of ClothingQuantity of ClothingDomestic DemandDomestic SupplyNew World Price

Suppose the following graph represents the market of clothing in Australia prior to the expansion of China's clothing industry. Australia is an of clothing because the world price is the domestic equilibrium price.

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