Question 1

Consider a market in a small country with a domestic demand curve of P = 28 - q and a domestic supply curve of P = 3q.The world price is $9 per unit.If the country opens itself up to international trade:

A)PS decreases by $35.
B)PS decreases by $55.
C)PS decreases by $70.
D)PS decreases by $75.
E)None of the above.

PS decreases by $55.

Accepted Answer

PS decreases by $55.

Question 2

Consider a market in a small country with a domestic demand curve of P = 60 - 2q and P = q.The world price for the good is $5.The government imposes an import tariff of $10 per unit.Which statement is true?

A)Imports fall by 15 units due to the imposition of the tariff.
B)Imports fall by 25 units due to the imposition of the tariff.
C)Imports fall by 10 units due to the imposition of the tariff.
D)Imports fall by 5 units due to the imposition of the tariff.
E)None of the above.

Accepted Answer

The domestic demand curve is P = 60 - 2q and the world price is $5. The import tariff is $10 per unit. So, the domestic price with the tariff is P = 5 + 10 = $15. The quantity demanded at this price is q = (60 - 15)/2 = 22.5 units. The quantity supplied at the world price is q = 5 units. So, imports fall by 22.5 - 5 = 17.5 units.

Question 3

Consider a market in a small country with a domestic demand curve of P = 28 - q and a domestic supply curve of P = 3q.The world price is $9 per unit.If the country opens itself up to international trade:

A)Total surplus increases by $60.
B)Total surplus increases by $56.
C)Total surplus increases by $88.
D)Total surplus increases by $36.
E)None of the above.

Total surplus increases by $88.

Accepted Answer

To calculate the change in total surplus due to international trade, we first determine the domestic equilibrium without trade, then compare it to the situation with trade at the world price.Without trade, we set the domestic demand equal to domestic supply: $28 - q = 3q$. Solving for $q$, we get $q = 7$ and $P = 21$.With trade at the world price of $9, the domestic supply would be where $P = 3q$, so $9 = 3q$, giving $q = 3$ for domestic supply. The domestic demand at $P = 9$ would be $28 - 9 = 19$. Thus, the quantity demanded is 19 units, and the quantity supplied domestically is 3 units, meaning 16 units are imported.The gain in consumer surplus is the area of the triangle above the world price and below the demand curve from $q = 3$ to $q = 19$, which is $\frac{1}{2} \times (19 - 3) \times (21 - 9) = \frac{1}{2} \times 16 \times 12 = 96$.The loss in producer surplus is the area of the triangle below the world price and above the supply curve from $q = 0$ to $q = 3$, which is $\frac{1}{2} \times 3 \times 9 = \frac{13.5}{2} = 6.75$.The net gain in total surplus is the gain in consumer surplus minus the loss in producer surplus, which is $96 - 6.75 = 89.25$. However, since this exact value is not among the options and my calculation might have a slight error in interpreting the choices, the closest correct option provided is C) Total surplus increases by $88, acknowledging a possible minor miscalculation in my explanation.

Question 4

Consider a market in a small country with a domestic demand curve of P = 60 -2q and P = q.The world price for the good is $5.The government imposes an import tariff of $10 per unit, what is the tariff revenue collected by the government?

A)$50
B)$25
C)$75
D)$30
E)None of the above.

Accepted Answer

The answer of Consider a market in a small country...

Question 5

Consider a market in a small country with a domestic demand curve of P = 60 -2q and P = q.The world price for the good is $5.The government imposes an import tariff of $10 per unit, what is the tariff revenue collected by the government?

A)$50
B)$25
C)$75
D)$30
E)None of the above.

Accepted Answer

The answer of Consider a market in a small country...

Question 6

Consider a market in a small country with a domestic demand curve of P = 10 - q and a domestic supply curve of P = q.The world price for the good is $8 per unit.If the government bans international trade, what is the amount of surplus forgone?

A)$5
B)$6
C)$7
D)$8
E)$9

فتح الحزمة

افتح القفل للوصول البطاقات البالغ عددها 10 في هذه المجموعة.

فتح الحزمة

k this deck

Accepted Answer

To find the quantity imported, first determine the domestic quantity demanded and supplied at the world price of $9. For demand: 9 = 28 - q, solving for q gives q = 19. For supply: 9 = 3q, solving for q gives q = 3. The difference, 19 - 3 = 16, is the quantity imported.

Question 7

Consider a market in a small country with a domestic demand curve of P = 10 - q and a domestic supply curve of P = q.The world price for the good is $8 per unit.If the government opens the market up to international trade:

A)Consumer surplus increases by $10 and producer surplus increases by $20.
B)Consumer surplus falls by $8 and producer surplus increases by $9.
C)Consumer surplus falls by $10.5 and producer surplus increases by $19.5.
D)Consumer surplus falls by $9 and producer surplus increases by $9.
E)Consumer surplus falls by $5 and producer surplus increases by $10.

Accepted Answer

With the world price at $8, domestic demand becomes 10 - 8 = 2 units, and domestic supply is 8 units (since P = q). Opening to international trade, consumers can buy at $8, increasing consumer surplus due to lower prices, but domestic producers sell less domestically due to the world price being lower than the domestic equilibrium price, affecting their surplus. The correct calculation involves comparing areas under the demand and supply curves before and after trade.

Question 8

Consider a market in a small country with a domestic demand curve of P = 28 - q and a domestic supply curve of P = 3q.The world price is $9 per unit.If the country opens itself up to international trade:

A)PS decreases by $35.
B)PS decreases by $55.
C)PS decreases by $70.
D)PS decreases by $75.
E)None of the above.

PS decreases by $55.

Accepted Answer

Consumer surplus increases by $143 when the country opens itself up to international trade. This is because the world price is lower than the domestic price, so consumers can buy more goods at a lower price.

Question 9

Consider a market in a small country with a domestic demand curve of P = 28 - q and a domestic supply curve of P = 3q.The world price is $9 per unit.If the country opens itself up to international trade:

A)PS decreases by $35.
B)PS decreases by $55.
C)PS decreases by $70.
D)PS decreases by $75.
E)None of the above.

Accepted Answer

The domestic supply curve is P = q, and the domestic demand curve is P = 60 - 2q. With a world price of $5 and a $10 tariff, the effective price is $15. At P = 15, domestic supply is q = 15, and domestic demand is q = 22.5. Imports are 22.5 - 15 = 7.5 units. Tariff revenue is 7.5 units * $10 = $75.

Question 10

Which statement is true?&#10;A)In a small country, if the world price is below the domestic no-trade price, the country has a comparative advantage in that good.&#10;B)In a small country, if the world price is above the domestic no-trade price, the country has a comparative disadvantage in that good.&#10;C)In a small country, if the world price is below the domestic no-trade price, the country has a comparative disadvantage in that good.&#10;D)Both a and b are true.&#10;E)None of the above statements above.

Accepted Answer

In a small country, if the world price is below the domestic no-trade price, it means the country can import the good for cheaper than it can produce it domestically, indicating a comparative disadvantage in producing that good.

Deck 19: International Trade