Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
12th Edition
ISBN: 9780134421315
Author: Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher: PEARSON
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Chapter 12, Problem 2.3P
To determine
Validating the statement on pareto-efficiency.
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Suppose that the world price of oil is roughly
$90.00 per barrel and that the world demand and
total world supply of oil equal 34 billion barrels per
year (bb/yr), with a competitive supply of 20 bb/yr
and 14 bb/yr from OPEC. Statistical studies have
shown that the long-run price elasticity of
demand for oil is -0.40, and the long-run
competitive price elasticity of supply is 0.40.
Using this information, derive linear demand and
competitive supply curves for oil.
Let the demand curve be of the general form
Q=a-bP
and the competitive supply curve be of the
general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the long-run demand curve is
A.Q=47.50-0.15P.
B.Q=13.50-47.50P.
C.Q=47.50-P.
D.Q=47.50+0.15P.
E.Q=13.50-0.15P.
Suppose that the world price of oil is roughly
$100.00
per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the
short−run
price elasticity of demand for oil is
−0.05,
and the
short−run
competitive price elasticity of supply is
0.10.
Using this information, derive linear demand and competitive supply curves for oil.
Let the demand curve be of the general form
Q=a−bP
and the competitive supply curve be of the general form
Q=c+dP,
where a, b, c, and d are constants.
The equation for the
short−run
demand curve is?
The equation for the
short−run
competitive supply curve is
Consider a hypothetical world consisting of only three countries: Hungary, Australia, and Italy. Each country produces grain. Hungary is a small
economy compared to Australia and Italy and thus cannot influence foreign prices.
On the following graph, the supply and demand schedules of Hungary are shown as Sun and Dun. Foreign supply schedules of grain are perfectly
elastic: Australia is a more efficient supplier of grain than Italy because its supply price is $1.00 per bushel (SAus), whereas Italy's supply price is
$2.00 per bushel (Sita).
PRICE (Dollars)
10.00
9.00
8.00
7.00
6.00
5.00
4.00
3.00
2.00
1.00
0
Hun
S +T
S₁ +T
S
S
+
0 3 6
A
Scenario
Free trade
With tariff
With customs union
m
SHu
12 15 18 21 24 27 30
GRAIN (Thousands of bushels)
Calculate the quantity of bushels Hungary imports when the three nations engage in free trade. Enter this value in the first row of the following table.
Also indicate which country Hungary imports from.
?
Imports
(Thousands of bushels) Imports…
Chapter 12 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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- Suppose that the world price of oil is roughly $50.00 per barrel and that the world demand and total world supply of oil equal 34 billion barrels per year (bb/yr), with a competitive supply of 20 bb/yr and 14 bb/yr from OPEC. Statistical studies have shown that the long-run price elasticity f demand for oil is -0.40, and the long-run competitive price elasticity of supply is 0.40. Using this information, derive linear demand and competitive supply curves for oil. Let the demand curve be of the general form Q = a - bP and the competitive supply curve be of the general form Q = c+dP, where a, b, c, and d are constants. The equation for the long-run demand curve is O A. Q=47.50 -0.27P. O B. Q=13.50 -0.27P. OC. Q=47.50-P O D. Q=47.50+ 0.27P. O E. Q=13.50-47.50P. The equation for the long-run competitive supply curve is O A. Q=12.00 + 47.50P. OB. Q=12.00 -0.16P. OC. Q 8.00+ 0.16P. O D. Q=8.00+ 0.27P. O E. Q=12.00 +0.16P.arrow_forwardIn January 2018, President Trump imposed tariffs on solar panels and washing machines of 30 to 50%. In March 2018 he imposed tariffs on steel (25%) and aluminum (10%) from most countries, representing an estimated 4.1 percent of U.S. imports. On June 1, 2018, this was extended to the European Union, Canada, and Mexico. The Trump administration also set and escalated tariffs on goods imported from China. As of January 2020, the Trump administration had imposed tariffs on 16.8% of all goods imported into the U.S. What would be the effects of these tariff on the US economy? Who would benefit and who would lose from these tariffs in the U.S.?arrow_forwardIn mid-2010, Saudi Arabia and Venezuela (both members of OPEC) produced an average of 8 million and 3 million barrels of oil a day, respectively. Production costs were about $20 per barrel, and the price of oil averaged $80 per barrel. Each country had the capacity to produce an extra 1 million barrels per day. At that time, it was estimated that each 1-million-barrel increase in supply would depress the average price of oil by $10. Consider the competition between Saudi Arabia and Venezuela as a game. a) Construct the payoff table. b) Do countries have a dominant strategy? c) What actions should each country take and why?arrow_forward
- Before Cyprus joined the EU there was an import tariff on imported fresh meat from the EU of €1.00 per Kg at a selling price of €6.00 per kg. The total annual Demand was 20m kgs (20,000tons) per year while when the tariff was lifted (after the accession to the EU) the annual demand increased to 260m kgs (260,000tons). At the €6.00 per kg price, domestic supply has been half of the total annual supply while when the tariff was lifted this was reduced by 20%. Calculate: The total increase in consumer surplus due to the abolition of the tariff. The total amount of the tariff revenue that had been lost. The change in the domestic and foreign producer surplus.arrow_forwardYou are given a brief about Ghana highlighting the following points: About half of Ghana’s population depends on agriculture, but Ghana still imports some of its food. The majority of Ghana's people live in rural areas and exist on a subsistence way of life. Ghana has one of the highest rates of income inequality in the world. Nearly half of the population is employed in agriculture. A representative from Ghana's agricultural organisation is very much in favour of closing borders. He argues that consumers and producers will benefit from this. Is he right? Who would benefit most, are there any losers from the policy?arrow_forwardCountry C imports 80,000 metric tons of steel from Country U and produces domestically 80,000 metric tons per year. The world price of steel is $500 per metric ton. Assuming linear schedules, research analysts estimated the price elasticity of domestic supply to be 0.50 and the price elasticity of domestic demand to be -0.25 in the current market equilibrium. Country C imposes an import duty of $150 per metric ton that caused the world price to fall by 10%. Analyse the effects of the consumer surplus, producer surplus, government revenue, and deadweight loss in the Country C steel market with the tariff. What are the terms of trade of the Country C steel market after the tariff was imposed? Explain the welfare effects of both countries.arrow_forward
- Country C imports 80,000 metric tons of steel from Country U and produces domestically 80,000 metric tons per year. The world price of steel is $500 per metric ton. Assuming linear schedules, research analysts estimated the price elasticity of domestic supply to be 0.50 and the price elasticity of domestic demand to be -0.25 in the current market equilibrium. Country C imposes an import duty of $150 per metric ton that caused the world price to fall by 10%. Summarise and analyse the quantity of steel produced, consumed and imported in Country C. Analyse and discuss the welfare gain from trade in Country C. Show your answers of the steel market with a proper diagram. Imports steel from Country U = 80,000 metric tons of steel Produce domestically = 80,000 metric tons per year Country C total steel consumption = 160,000 metric tons per year Price of steel per metric ton = $500arrow_forwardCountry C imports 80,000 metric tons of steel from Country U and produces domestically 80,000 metric tons per year. The world price of steel is $500 per metric ton. Assuming linear schedules, research analysts estimated the price elasticity of domestic supply to be 0.50 and the price elasticity of domestic demand to be -0.25 in the current market equilibrium. Country C imposes an import duty of $150 per metric ton that caused the world price to fall by 10%. (a) Summarise and analyse the quantity of steel produced, consumed and imported in Country C. Analyse and discuss the welfare gain from trade in Country C. Show your answers of the steel market with a proper diagram. (b) Analyse the effects of the consumer surplus, producer surplus, government revenue and deadweight loss in the Country C steel market with the tariff. What are the terms of trade of the Country C steel market after the tariff was imposed? Explain the welfare effects of both countries.arrow_forwardCountry C imports 80,000 metric tons of steel from Country U and produces domestically 80,000 metric tons per year. The world price of steel is $500 per metric ton. Assuming linear schedules, research analysts estimated the price elasticity of domestic supply to be 0.50 and the price elasticity of domestic demand to be -0.25 in the current market equilibrium. Country C imposes an import duty of $150 per metric ton that caused the world price to fall by 10%. Summarise and analyze the quantity of steel produced, consumed, and imported in Country C. Analyse and discuss the welfare gain from trade in Country C. Show your answers to the steel market with a proper diagram.arrow_forward
- Suppose that Canada imports pearl necklaces from India. The free market price is $111.00 per necklace. If the tariff on imports in Canada is initially 26%, Canadians pay $ per necklace. One of the accomplishments of the Uruguay Round that took place between 1986 and 1993 was significant across-the-board tariff cuts for industrial countries, as well as many developing countries. Suppose that as a result of the Uruguay Round, Canada reduces its import tariffs to 13%. Assuming the price of pearl necklaces is still $111.00 per necklace, consumers now pay the price of $ Based on the calculations and the scenarios presented, the Uruguay Round most likely hurts consumers hurts consumers in India. per necklace. in Canada andarrow_forwardA federal regulation that required that all beef consumed in the US must be grown and processed in the US is likely to: Drive up the price of beef in the US Increase beef consumption in the US Decrease consumption of chicken in the US (assuming chicken is a substitute for beef in the US) Increase international trade in beef productsarrow_forwardDuring the 1980s, most of the world’s supply of lysine was produced by a Japanese company named Ajinomoto. Lysine is an essential amino acid that is an important livestock feed component. At this time, the United States imported most of the world’s supply of lysine—more than 30,000 tons—to use in livestock feed at a price of $1.65 per pound. The worldwide market for lysine, however, fundamentally changed in 1991 when U.S.-based Archer Daniels Midland (ADM) began producing lysine—a move that doubled worldwide production capacity. Experts conjectured that Ajinomoto and ADM had similar cost structures and that the marginal cost of producing and distributing lysine was approximately $0.70 per pound. Despite ADM’s entry into the lysine market, suppose demand remained constant at Q = 208 − 80P (in millions of pounds). Shortly after ADM began producing lysine, the worldwide price dropped to $0.70. By 1993, however, the price of lysine shot back up to $1.65. Use the theories discussed in this…arrow_forward
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