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 20, Problem 5.1P
To determine
Identify the role of the trade agreement in an economy.
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< Question 73 of 75
The automobile industry in Macroland successfully lobbies for import quotas that result in automobile prices that are $1,000
higher than before the quotas. Increased sales of automobiles produced in Macroland protect the jobs of 20,000 automobile
workers. What is an additional consequence of the quotas that is not as attractive for Macroland's economy?
Automobile producers in other countries will reduce the price of their cars to offset the higher prices required by the
quotas.
O Each of Macroland's citizens who buys a car will have $1,000 less to spend on other products, leading to reduced sales
and fewer jobs in other industries.
The government will lose tax revenue.
Consumers will buy more cars than before, pushing the automobile market out of equilibrium.
Ghana's parliament is debating how to undertake ISI. The debate centres on whether they should impose tariffs on imports or use quotas. Which system is better for consumers? (use a diagram to explain yourself).
Which of the following is true of foreign trade zones?
These are areas that are physically outside U.S. soil but are considered to be inside U.S. commerce.
Goods entering foreign trade zones are subject to duty until they leave the zones.
Federal government has made it mandatory for U.S. companies to set up manufacturing plants within the foreign trade zones.
Companies that have set up manufacturing plants within the foreign trade zones are free from paying duty on defective materials.
Chapter 20 Solutions
Principles of Microeconomics, Student Value Edition Plus MyLab Economics with Pearson eText -- Access Card Package (12th Edition)
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- Back to Assignment Attempts 4. Effects of a tariff on international trade The following graph shows the domestic demand for and supply of oranges in Colombia. The world price (Pw) of oranges is $535 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of oranges and that there are no transportation or transaction costs associated with international trade in oranges. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. PRICE (Dollars per ton) 850 815 780 745 710 675 640 605 570 535 500 0 Domestic Demand Average / 3 40 80 Domestic Supply P. W 120 160 200 240 280 320 360 400 QUANTITY (Tons of oranges) A tariff set at this level would raise $ ? If Colombia is open to international trade in oranges without any restrictions, it will import Suppose the…arrow_forwardThe cost of producing cars in Canada is $30,000, while the cost of producing cars in Mexico is $22,000, while in the U.S. it costs $18,000. Canada currently imposes a 50% tariff on all automobile imports. a) If Canada enters into a customs union with Mexico, will this lead to trade diversion or trade creation? b) If the tariff rate was originally 100%, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation? c) If the tariff rate was originally 100%, and the cost of producing cars in the U.S. was $12,000, would Canada entering into a customs union with Mexico lead to trade diversion or trade creation?arrow_forwardThe model (graph) below represents a small country trade of good X after the government decided to impose tariffs on import. Consider the case of trade after tariffs. Please answer the following questions: What area(s) represent the gain of surplus to producers? What area(s) represent government revenue? What area(s) represent the loss of surplus to consumers? What area(s) represent consumers surplus? What's the quantity imported? Describe the impact of a tariff on social welfare. Refer to the graph to support your answer. A Qs Qs,t QD₂t Q₂ Quantity Edit View Insert Format Tools Table Price Pw+t Pw G Carrow_forward
- Steel Industry Consider a small country that exports steel. Suppose the following graph depicts the domestic demand and supply for steel in this country. One of the two price lines represents the world price of steel. Use the following graph to help you answer the questions below. You will not be graded on any changes made to this graph. 1. Because this country exports steel, the world price is represented by P1 or P2. Suppose that a “pro-trade” government decides to subsidize the export of steel by paying $10 for each ton sold abroad. 2. With this export subsidy, the price paid by domestic consumers is $???? per ton, and the price received by domestic producers is $???? per ton. 3. The quantity of steel consumed by domestic consumers INCREASES or REMAINS UNCHANGED or DECREASES, the quantity of steel produced by domestic producers INCREASES or REMAINS UNCHANGED or DECREASES, and the quantity of steel exported INCREASES or REMAINS UNCHANGED or DECREASES. 4. TRUE or FALSE:…arrow_forwardPertaining to the information given above, Ghana's parliament is debating how to undertake ISI. The debate centres on whether they should impose tariffs on imports or use quotas. Which system is better for consumers? (use a diagram to explain yourself).arrow_forwardIn South Korea's state-led industrialization, export subsidies allowed South Korean products (from Samsung, Hyundai) to be sold all over the world. Compare and contrast export subsidies to import tariffs. Which factor might lead a country to decide on one or the other?arrow_forward
- Should the Trade Embargo on Cuba Be Lifted? Three years after Fidel Castro took power in Cuba and installed a Communist regime, the U.S. government initiated a trade embargo against the nation. The embargo was intended to put economic pressure on the Cuban government. Today the embargo is still in effect— one of the longest trade embargos in modern history. Opponents on each side of the issue debate its effectiveness. Who is right? As you read the selections, ask yourself: Should the trade embargo on Cuba be lifted or remain in place? PRO A HALF-CENTURY OF FAILURE For almost half a century, the U.S. government has tried to isolate Cuba economically in an effort to undermine the [Communist] regime [of Fidel Castro] and deprive it of resources. Since 1960, Americans have been barred from trading with, investing in, or traveling to Cuba. . . . As a foreign policy tool, the embargo actually enhances Castro’s standing by giving him a handy excuse for the failures of his…arrow_forwardQ3: Using a domestic-market demand- and supply-curve graph, show the impact of tariff on a small country's import price, domestic demand, domestic supply, import quantity, consumer surplus, producer surplus, government revenue, and total welfare; Is the country unambiguously worse off as a result of the tariff? In the same graph, show how to achieve the same import quantity with an import quota; When would the tariff and the import quota lead to the same amount of welfare change? How will the answer to (a) and (b) change if the country uses a subsidy that is equivalent to the tariff rate to help domestic producers? How would the answers to (a) and (b) change for a large country? Your answer:arrow_forwardPrice of Pencil Sharpeners $24 16 12 4 200 300 450 Domestic Supply World Price Domestic Demand Quantity of Pencil Sharpenersarrow_forward
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