International Economics: Problem Solving

Macro & Micro economics

International Economics: Problem Solving

QUESTION 1

Answer questions below based upon the following information about country A’s market

for its importable.

Country A’s supply curve: P = 0.5Q

Country A’s demand curve: P= 40 – 0.25Q

whereP denotes price and Q denotes quantity

Suppose that country C would be willing to export the product to A for $15 per unit,

while country B, the low-cost world producer, is willing to export at a price of $10.

Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of the

product imported from countries B and C if the above tariff is imposed, respectively.

(a) Illustrate this market in country A on a demand and supply diagram. (Please show

all the intercepts). Let the lines SB and SC denote the export supply curves to A’s

market from countries B and C, respectively.

(b) Under free trade, from whom country A import this product? How many units

will it import and what will be the domestic price of this product in country A?

(c) If A imposes a per unit tariff of $10 on imports from country B, from whom will

it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Let the lines (SB + tariff) denote the domestic price of the product imported from

country B if the above tariff is imposed.

(d) If A imposes a per unit tariff of $10 on imports from country C, from whom will

it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Let the lines (SC + tariff) denote the domestic price of the product imported from

country C if the above tariff is imposed.

(e) If A imposes a per unit tariff of $10 on imports from both B and C, from whom

will it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of

the product imported from countries B and C if the above tariff is imposed,

respectively.

Question 2: Quotas

The United States has used quotas to protect its domestic sugar industry. What has been

the likely impact of these quotas on the world price of sugar (relative to the price that

would exist under free trade)? Explain.

Question 3: NAFTA

In your opinion, why was the formation of NAFTA so controversial in the US, while the

formation of Canada-US FTA was little noticed by most Americans?

Last Updated on February 10, 2019 by EssayPro