# Exercises Lecture 8: Trade policies

Save this PDF as:

Size: px
Start display at page:

## Transcription

1 Exercises Lecture 8: Trade policies Exercise 1, from KOM 1. Home s demand and supply curves for wheat are: D = S = Derive and graph Home s import demand schedule. What would the price of wheat be in the absence of trade?. Now add Foreign, which has a demand curve and a supply curve D = 80 0 S = Derive and graph Foreign s export supply curve and find the price of wheat that would prevail in Foreign in the absence of trade 3. Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade? 4. Assume that Home imposes a specific tariff t = 0.5 on wheat imports. (a) Determine and graph the effects of the tariff on the following: (i) the price of wheat in each country; (ii) the quantity of wheat supplied and demanded in each country; (iii) the volume of trade. (b) Determine the effect of the tariff on the welfare of each of the following groups: (i) Home import-competing producers; (ii) Home consumers; (iii) the Home government. (c) Show graphically and calculate the terms of trade gain, the efficiency loss, and the total effect on welfare of the tariff. 1

2 Exercise, from KOM Suppose that Foreign had been a much larger country, with domestic demand and supply D = S = Notice that this assumption implies that the Foreign price of wheat in the absence of trade would have been the same as in the previous problem. 1. Recalculate the free trade equilibrium and the effects of a 0, 5 specific tariff by Home.. Relate the difference in results to the discussion of the small country case in the text. Exercise 3 Consider Fig. 1 and answer to the following questions. 14 S 8 6 World price + tariff 3 World price D Figure 1

3 1. In the absence of Trade how many units of the good does this country produce and consume?. In the absence of trade what is the country s consumer plus producer surplus? 3. With free trade and no tariffs, what is the amount of the good imported? 4. With a specific tariff t = 3 per unit, what is the amount of the good imported? 5. What is the effect of the tariff on the welfare of producers, consumers and government? Exercise 4, from KOM The nation of Acirema is small and unable to affect world prices. It imports peanuts at the price of \$10 per bag. The demand and supply curves are: D = S = Determine the free trade equilibrium. Then calculate and graph the following effects of an import quota that limits imports to 50 bags. 1. The increase in the domestic price.. The quota rents. 3. The consumption distortion loss. 4. The production distortion loss. 3

4 Solutions Exercise 1 1. Home s import demand schedule MD is given by: MD = D S = = and graphically it is given by: HOME 5 S 1,75 1,5 1 D ,75 1,5 1 MD Figure. Home s Import Demand Curve The price of wheat be in the absence of trade is given by the intersection of the curves D and S and it equal to =. Algebraically, it is obtained from D = S (or MD = 0), hence: = 0 = 4

5 . Foreign s export supply curve XS is given by: XS = S D = = and graphically it is given by: FOREIGN XS 4 S D Figure 3. Foreign s export supply curve As previously, the price of wheat be in the absence of trade is given by the intersection of the curves D and S and it equal to = 1. Algebraically, it is obtained from D = S (or XS = 0), hence: = 0 = 1 5

6 3. The equilibrium under free trade is given by MD = XS, that is: = = 80 W = 1, 5 To find the volume of trade, it suffices to substitute the world price W into either the MD or the XS, so as to obtain: , 5 = 0 = Volume of trade without tariff (free trade) Graphically, it is represented in Fig. 4 WORLD EUILIBRIUM XS t { 1,75 1,5 1,5 1 MD Figure 4. World equilibrium 4. (a) When Home imposes a tariff t = 0.5 on wheat imports, only the MD modifies (the XS remains unchanged), and becomes: MD = ( + t) = 80 40( + 0, 5) = = } {{ } T 6

7 hence the new price, namely T, is given by: MD = XS = T = 1, 5 while the price in Home, T is given by T = T + t = 1, 5 + 0, 5 = 1, 75 To determine the the quantity of wheat supplied and demanded in each country as well as the new volume of trade, it suffices to substitute the correct price, either T or T in the demand and supply functions. Hence, substituting T in D and S you obtain, for Home: D = , 75 = 65 S = , 75 = 55 while, by substituting T in D and S you obtain, for Foreign: D = , 5 = 55 S = , 5 = 65 where it should be clear that the new volume of trade is equal to 10, as shown by Fig. 4. (b) To determine the effect of the tariff on the welfare of the different groups, refer to Fig. 5. where the areas a, b, c, d and e are given by: a = ( ) 0.5 = 13, 15 b = d = = 0, 65 c = e = =, 5 The reduction in consumers surplus is equal to a + b + c + d, hence it is equal to 16,875. 7

8 S 1,75 1,5 1,5 a b c e d D Figure 5. Welfare, efficiency loss and terms of trade gain. roducers gain the area a, which is equal to 13,15. Government revenue is equal to the area c, hence it is equal,5. (c) The efficiency loss is equal to b + d = 0, 65 = 1, 5 The terms of trade gain is equal to e =, 5 The total effect on welfare of the tariff is positive and equal to (b + d) + e = 1, 5 +, 5 = 1, 5. 8

9 Solutions Exercise To recalculate the free trade equilibrium and the effects of a 0, 5 specific tariff by Home you need to determine the new XS, given by: XS = S D = = The free trade equilibrium is given by the intersection of the XS with the MD as follows: MD = XS : = W = 1, 09 The equilibrium with a tariff t = 0, 5 imposed by Home is given instead by: MD = XS : = T = 1, 045 while the price in Home, T : T + t = 1, , 5 = 1, 545 By following the same reasoning as the previous exercise, the volume of trade with no tariff ( = 1, 09) is therefore equal to 36,4 (you just need to substitute the price into either the MD or the XS), while the volume of trade with the tariff is equal to 18, (in this case either you plug T into the MD or T into the XS). Notice that there is already an important difference in comparison to Exercise 1. When Home is relatively small, the effect of a tariff on world price is much smaller than when Home is relatively large. When Foreign and Home were closer in size, as in Exercise 1, a tariff of 0, 5 imposed by Home lowered world price from 1, 5 to 1, 5, whereas in this case the same tariff lowers world price only from 1, 09 to 1, 045. There are important differences also when it comes to analyze welfare, as Fig. 6 shows. The areas now are given by: a = (50, , 8) 0, 455 = 1, 089 b = d = 9.1 0, 455 =, 07 c = 18, 0, 455 = 8, 8 9

10 e = 18, 0, 045 = 0, 819 where a represent the increase in producers surplus, a + b + c + d = 33,51 the reduction in consumers surplus and c the government s revenue. It is important to underline that - given the assumptions of the exercise - now the efficiency loss, b + d = 4, 14 is much bigger in comparison to the terms of trade gain, equal to e = 0, 819, as a consequence of the different variation of prices. This small country example where the distortionary losses from the tariff overcome the terms of trade gains should then make it clear that the smaller the economy, the larger the losses from a tariff due to smaller terms of trade gains. Solutions Exercise S 1,545 1,09 1,045 a b c e d 41,8 50,9 69,1 78, Figure 6. Welfare, efficiency loss and terms of trade gain. D 10

11 . The consumers surplus is equal to 6 60 = 180, which is also equal to producers surplus. Hence the total surplus (consumers + producers) is equal to With free trade, you have to consider the world price W = 3, thus the amount of good imported is equal to = With a specific tariff t = 3 per unit the amount of good imported is equal to = The variation in consumers surplus can be calculated by considering the initial surplus - the surplus with the tariff, that is: 100 (14 3) 80 (14 6) = = = 30 By the same reasoning, the variation in producers surplus is: 40 (6 ) 10 (3 ) = 80 5 = 75 Finally, the revenue for the government is given by: amount imported amount of the tariff = 40 3 = 10 Solutions Exercise 4 1. To determine the free trade equilibrium, you just have to substitute the price W = 10 into the demand and supply functions as follows: D = = 300 S = = 100. Hence the MD is MD = D S = = 00 which defines total imports of Acirema. 11

12 With a quota which limits imports to 50 bags, the increase in the domestic price can be identified by equating the demand to the domestic supply + the quota, that is: D = S + quota : = }{{} quota = 0 Hence, graphically, the equilibrium is as in Fig. 7: S 3, a b D Figure 7. uota rents are therefore given by (0 10) quota = = The consumption distortion loss is given by the area b, where b = = 500 1

13 4. The production distortion loss is given by the area a, where a = = 50 13

### Economics 181: International Trade Homework # 4 Solutions

Economics 181: International Trade Homework # 4 Solutions Ricardo Cavazos and Robert Santillano University of California, Berkeley Due: November 1, 006 1. The nation of Bermuda is small and assumed to

### Q D = 100 - (5)(5) = 75 Q S = 50 + (5)(5) = 75.

4. The rent control agency of New York City has found that aggregate demand is Q D = 100-5P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured

### Economics 165 Winter 2002 Problem Set #2

Economics 165 Winter 2002 Problem Set #2 Problem 1: Consider the monopolistic competition model. Say we are looking at sailboat producers. Each producer has fixed costs of 10 million and marginal costs

### International Economic Relations

International Economic Relations Prof. Murphy Chapter 8 Krugman and Obstfeld 1. The import demand equation, MD, is found by subtracting the home supply equation from the home demand equation. This results

### KOÇ UNIVERSITY ECON 321 - INTERNATIONAL TRADE

KOÇ UNIVERSITY ECON 321 - INTERNATIONAL TRADE Mid-term Exam (100 points; 90 minutes) Answer all 5 questions. In providing answers to the questions in this section algebra or graphs might be helpful. State

### Review Question - Chapter 7. MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

Review Question - Chapter 7 MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question. 1) International trade arises from A) the advantage of execution. B) absolute

### Economics 101 Fall 2011 Homework #3 Due 10/11/11

Economics 101 Fall 2011 Homework #3 Due 10/11/11 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on top of the homework (legibly).

### dr Bartłomiej Rokicki Chair of Macroeconomics and International Trade Theory Faculty of Economic Sciences, University of Warsaw

Chair of Macroeconomics and International Trade Theory Faculty of Economic Sciences, University of Warsaw The small open economy The small open economy is an economy that is small enough compared to the

### 3) The excess supply curve of a product we (H) import from foreign countries (F) increases as B) excess demand of country F increases.

International Economics, 8e (Krugman) Chapter 8 The Instruments of Trade Policy 8.1 Basic Tariff Analysis 1) Specific tariffs are A) import taxes stated in specific legal statutes. B) import taxes calculated

### Problem Set #5 (Due in Class on June 2, 2011)

Name: Problem Set #5 (Due in Class on June 2, 2011) Date: 1. The table below represents a demand and supply schedule for a small-country producer of iron ore. It sells output in its home market and on

### Chapter 9 1. Use Exhibit 3 to answer the following questions.

Chapter 9 1. Use Exhibit 3 to answer the following questions. Exhibit 3 a. If trade is not allowed, what is the equilibrium price and quantity in this market? Price = 4, quantity = 40 units. b. If trade

### Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph

The Effect of Taxes on Equilibrium Example 1: Suppose the demand function is p = 50 2q, and the supply function is p = 10 + 3q. a) Find the equilibrium point b) Sketch a graph Solution to part a: Set the

### Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum. Macroeconomics Series (3): Extension of trade theory

Knowledge Enrichment Seminar for Senior Secondary Economics Curriculum Macroeconomics Series (3): Extension of trade theory by Dr. Charles Kwong School of Arts and Social Sciences The Open University of

### tariff versus quota Equivalence and its breakdown

Q000013 Bhagwati (1965) first demonstrated that if perfect competition prevails in all markets, a tariff and import quota are equivalent in the sense that an explicit tariff reproduces an import level

### Answers to Text Questions and Problems. Chapter 22. Answers to Review Questions

Answers to Text Questions and Problems Chapter 22 Answers to Review Questions 3. In general, producers of durable goods are affected most by recessions while producers of nondurables (like food) and services

### Introduction to Macroeconomics TOPIC 2: The Goods Market

TOPIC 2: The Goods Market Annaïg Morin CBS - Department of Economics August 2013 Goods market Road map: 1. Demand for goods 1.1. Components 1.1.1. Consumption 1.1.2. Investment 1.1.3. Government spending

### Midterm Exam - Answers. November 3, 2005

Page 1 of 10 November 3, 2005 Answer in blue book. Use the point values as a guide to how extensively you should answer each question, and budget your time accordingly. 1. (8 points) A friend, upon learning

### MICROECONOMICS II PROBLEM SET III: MONOPOLY

MICROECONOMICS II PROBLEM SET III: MONOPOLY EXERCISE 1 Firstly, we analyze the equilibrium under the monopoly. The monopolist chooses the quantity that maximizes its profits; in particular, chooses the

The Standard Trade Model Chapter 5 Intermediate International Trade International Economics, 5 th ed., by Krugman and Obstfeld 1 Standard model of a trading economy the standard trade model is a general

### In following this handout, sketch appropriate graphs in the space provided.

Dr. McGahagan Graphs and microeconomics You will see a remarkable number of graphs on the blackboard and in the text in this course. You will see a fair number on examinations as well, and many exam questions,

### Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8 Business Applications: Break Even Analysis, Equilibrium Quantity/Price Three functions of importance in business are cost functions, revenue functions and profit functions. Cost functions

### Chapter 4. Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Introduction So far we learned that countries are overall better off under free trade. If trade is so good for the economy, why is there such opposition?

### Practice Problems on the Capital Market

Practice Problems on the Capital Market 1- Define marginal product of capital (i.e., MPK). How can the MPK be shown graphically? The marginal product of capital (MPK) is the output produced per unit of

### CEVAPLAR. Solution: a. Given the competitive nature of the industry, Conigan should equate P to MC.

1 I S L 8 0 5 U Y G U L A M A L I İ K T İ S A T _ U Y G U L A M A ( 4 ) _ 9 K a s ı m 2 0 1 2 CEVAPLAR 1. Conigan Box Company produces cardboard boxes that are sold in bundles of 1000 boxes. The market

### Math 1314 Lesson 8: Business Applications: Break Even Analysis, Equilibrium Quantity/Price

Math 1314 Lesson 8: Business Applications: Break Even Analysis, Equilibrium Quantity/Price Cost functions model the cost of producing goods or providing services. Examples: rent, utilities, insurance,

Advanced International Economics Prof. Yamin Ahmad ECON 758 Sample Midterm Exam Name Id # Instructions: There are two parts to this midterm. Part A consists of multiple choice questions. Please mark the

### Equilibrium is the Intersection of Supply and Demand Curves. Partial Equilibrium Analysis. Price Setting. Supply and Demand Elasticities

rof. Jay Bhattacharya Econ 11--Lecture 16 artial Analysis We have now analyzed the intricate workings of market supply and demand curves from the bottom up. Today, we will put together these curves to

### Answers to Text Questions and Problems in Chapter 8

Answers to Text Questions and Problems in Chapter 8 Answers to Review Questions 1. The key assumption is that, in the short run, firms meet demand at pre-set prices. The fact that firms produce to meet

### Who gains and who loses from an import tariff? An export tax? (Assume world prices are fixed).

Who gains and who loses from an import tariff? An export tax? (Assume world prices are fixed). Governments usually impose import tariffs, taxes levied on imports, to promote industries considered to be

### CLASSIFICATION OF MARKETS Perfectly competitive, various types of imperfect competition

ECO 352 Spring 2010 No. 15 Mar. 30 TRADE POLICIES: TARIFFS AND QUOTAS CLASSIFICATION OF POLICIES Price-type: import tariffs, export taxes and subsidies Quantity-type: quotas, voluntary restraint and orderly

### Number of Workers Number of Chairs 1 10 2 18 3 24 4 28 5 30 6 28 7 25

Intermediate Microeconomics Economics 435/735 Fall 0 Answers for Practice Problem Set, Chapters 6-8 Chapter 6. Suppose a chair manufacturer is producing in the short run (with its existing plant and euipment).

### Natural Resources and International Trade

Department of Economics University of Roma Tre Academic year: 2013 2014 Natural Resources and International Trade Instructors: Prof. Silvia Nenci Prof. Luca Salvatici silvia.nenci@uniroma3.it luca.salvatici@uniroma3.it

### Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013

Economics 101 Fall 2013 Answers to Homework 5 Due Tuesday, November 19, 2013 Directions: The homework will be collected in a box before the lecture. Please place your name, TA name and section number on

### CHAPTER 2 THE BASICS OF SUPPLY AND DEMAND

CHAPTER 2 THE BASICS OF SUPPLY AN EMAN EXERCISES 1. Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows: Price (\$) emand (millions)

### Practice Problems on Current Account

Practice Problems on Current Account 1- List de categories of credit items and debit items that appear in a country s current account. What is the current account balance? What is the relationship between

### 1. Various shocks on a small open economy

Problem Set 3 Econ 122a: Fall 2013 Prof. Nordhaus and Staff Due: In class, Wednesday, September 25 Problem Set 3 Solutions Sebastian is responsible for this answer sheet. If you have any questions about

### = C + I + G + NX ECON 302. Lecture 4: Aggregate Expenditures/Keynesian Model: Equilibrium in the Goods Market/Loanable Funds Market

Intermediate Macroeconomics Lecture 4: Introduction to the Goods Market Review of the Aggregate Expenditures model and the Keynesian Cross ECON 302 Professor Yamin Ahmad Components of Aggregate Demand

### Relationships among Inflation, Interest Rates, and Exchange Rates. J. Gaspar: Adapted from Jeff Madura, International Financial Management

Chapter8 Relationships among Inflation, Interest Rates, and Exchange Rates J. Gaspar: Adapted from Jeff Madura, International Financial Management 8. 1 International Finance Theories (cont) Purchasing

### These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key!

These are some practice questions for CHAPTER 23. Each question should have a single answer. But be careful. There may be errors in the answer key! 67. Public saving is equal to a. net tax revenues minus

### Chapter 7: The Costs of Production QUESTIONS FOR REVIEW

HW #7: Solutions QUESTIONS FOR REVIEW 8. Assume the marginal cost of production is greater than the average variable cost. Can you determine whether the average variable cost is increasing or decreasing?

### EC2105, Professor Laury EXAM 2, FORM A (3/13/02)

EC2105, Professor Laury EXAM 2, FORM A (3/13/02) Print Your Name: ID Number: Multiple Choice (32 questions, 2.5 points each; 80 points total). Clearly indicate (by circling) the ONE BEST response to each

### Market for cream: P 1 P 2 D 1 D 2 Q 2 Q 1. Individual firm: W Market for labor: W, S MRP w 1 w 2 D 1 D 1 D 2 D 2

Factor Markets Problem 1 (APT 93, P2) Two goods, coffee and cream, are complements. Due to a natural disaster in Brazil that drastically reduces the supply of coffee in the world market the price of coffee

Chapter 7. Comparative Advantage and the Gains from International Trade Instructor: JINKOOK LEE Department of Economics / Texas A&M University ECON 203 502 Principles of Macroeconomics International Trade

### Chapter 7. a. Plot Lauren Landlord's willingness to pay in Exhibit 1. Exhibit 1. Answer: See Exhibit 6. Exhibit 6

Chapter 7 1. The following information describes the value Lauren Landlord places on having her five houses repainted. She values the repainting of each house at a different amount depending on how badly

### Module 12 : Cost Volume Profit Analysis. Lecture 1 : Cost Volume Profit Analysis

Module 12 : Cost Volume Profit Analysis Lecture 1 : Cost Volume Profit Analysis Objectives In this lecture you will learn the following Cost Volume Profit (CVP) Introduction. Fixed costs. Variable costs.

### 3. Solve the equation containing only one variable for that variable.

Question : How do you solve a system of linear equations? There are two basic strategies for solving a system of two linear equations and two variables. In each strategy, one of the variables is eliminated

### 0 100 200 300 Real income (Y)

Lecture 11-1 6.1 The open economy, the multiplier, and the IS curve Assume that the economy is either closed (no foreign trade) or open. Assume that the exchange rates are either fixed or flexible. Assume

### Supply and Demand. A market is a group of buyers and sellers of a particular good or service.

Supply and Demand A market is a group of buyers and sellers of a particular good or service. The definition of the good is a matter of judgement: Should different locations entail different goods (and

### . In this case the leakage effect of tax increases is mitigated because some of the reduction in disposable income would have otherwise been saved.

Chapter 4 Review Questions. Explain how an increase in government spending and an equal increase in lump sum taxes can generate an increase in equilibrium output. Under what conditions will a balanced

### a) Find the equilibrium price and quantity when the economy is closed.

Economics 102 Fall 2007 Answers to Homework 2 Problem 1: In Schulzland, a small closed economy, the supply and demand for bushels of peanuts are given by D: P = 200 5Q and S: P = 40 + 3Q. The world price

### What you will learn: UNIT 3. Traditional Flow Model. Determinants of the Exchange Rate

What you will learn: UNIT 3 Determinants of the Exchange Rate (1) Theories of how inflation, economic growth and interest rates affect the exchange rate (2) How trade patterns affect the exchange rate

### 5 Systems of Equations

Systems of Equations Concepts: Solutions to Systems of Equations-Graphically and Algebraically Solving Systems - Substitution Method Solving Systems - Elimination Method Using -Dimensional Graphs to Approximate

### Web Supplement to Chapter 2

Web upplement to Chapter 2 UPPLY AN EMAN: TAXE 21 Taxes upply and demand analysis is a very useful tool for analyzing the effects of various taxes In this Web supplement, we consider a constant tax per

### Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004

Principles of Macroeconomics Prof. Yamin Ahmad ECON 202 Fall 2004 Sample Final Exam Name Id # Part B Instructions: Please answer in the space provided and circle your answer on the question paper as well.

### price quantity q The Supply Function price quantity q

Shown below is another demand function for price of a pizza p as a function of the quantity of pizzas sold per week. This function models the behavior of consumers with respect to price and quantity. 3

### Managerial Economics & Business Strategy Chapter 9. Basic Oligopoly Models

Managerial Economics & Business Strategy Chapter 9 Basic Oligopoly Models Overview I. Conditions for Oligopoly? II. Role of Strategic Interdependence III. Profit Maximization in Four Oligopoly Settings

### False_ If there are no fixed costs, then average cost cannot be higher than marginal cost for all output levels.

LECTURE 10: SINGLE INPUT COST FUNCTIONS ANSWERS AND SOLUTIONS True/False Questions False_ When a firm is using only one input, the cost function is simply the price of that input times how many units of

### 7. Which of the following is not an important stock exchange in the United States? a. New York Stock Exchange

Econ 20B- Additional Problem Set 4 I. MULTIPLE CHOICES. Choose the one alternative that best completes the statement to answer the question. 1. Institutions in the economy that help to match one person's

### Graph 1: Market equilibrium

ISSN 1314-74, Volume 9, 015 CONSUMER AND PRODUCER SURPLUS CHANGES AFTER TAXATION Fran Galetic Faculty of Economics and Business Zagreb, University of Zagreb, J.F. Kennedy square 6, 10000 Zagreb, Croatia

### ECO 352 Spring 2010 No. 7 Feb. 23 SECTOR-SPECIFIC CAPITAL (RICARDO-VINER) MODEL

ECO 352 Spring 2010 No. 7 Feb. 23 SECTOR-SPECIFIC CAPITAL (RICARDO-VINER) MODEL ASSUMPTIONS Two goods, two countries. Goods can be traded but not factors across countries. Capital specific to sectors,

### Answers to Text Questions and Problems in Chapter 11

Answers to Text Questions and Problems in Chapter 11 Answers to Review Questions 1. The aggregate demand curve relates aggregate demand (equal to short-run equilibrium output) to inflation. As inflation

### CONCEPT OF MACROECONOMICS

CONCEPT OF MACROECONOMICS Macroeconomics is the branch of economics that studies economic aggregates (grand totals):e.g. the overall level of prices, output and employment in the economy. If you want to

### Chapter 4 Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Chapter Organization Introduction The Specific Factors Model International Trade in the Specific Factors Model Income Distribution and the Gains from

### Market Equilibrium and Applications

Market Equilibrium and Applications I. Market Equilibrium In the previous chapter, we discussed demand and supply, both for individual consumers and firms and for markets. In this chapter, we will combine

### CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY

CHAPTER 8 PROFIT MAXIMIZATION AND COMPETITIVE SUPPLY TEACHING NOTES This chapter begins by explaining what we mean by a competitive market and why it makes sense to assume that firms try to maximize profit.

### Week 1: Functions and Equations

Week 1: Functions and Equations Goals: Review functions Introduce modeling using linear and quadratic functions Solving equations and systems Suggested Textbook Readings: Chapter 2: 2.1-2.2, and Chapter

### c. Given your answer in part (b), what do you anticipate will happen in this market in the long-run?

Perfect Competition Questions Question 1 Suppose there is a perfectly competitive industry where all the firms are identical with identical cost curves. Furthermore, suppose that a representative firm

### Demand. See the Practical #4A Help Sheet for instructions and examples on graphing a demand schedule.

Demand Definition of Demand: Demand is a relation that shows the quantities that buyers are willing and able to purchase at alternative prices during a given time period, all other things remaining the

### There are 10 Internal Credits AS 91401 V1 (3.3) 5 credits: Elasticity & micro-economic concepts Literacy

Year 13 Economics Course Outline This course will cover the micro-economic issues of Market efficiency, Elasticity, Government intervention, Market failure and macroeconomic Influences on NZ economy. There

### Chapter 3 Key for homework questions

Chapter 3 Key for homework questions 3. (Key Question) What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car? a. Small automobiles become

7.5 SYSTEMS OF INEQUALITIES Copyright Cengage Learning. All rights reserved. What You Should Learn Sketch the graphs of inequalities in two variables. Solve systems of inequalities. Use systems of inequalities

### Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back

Recitation #4 Week 02/02/2009 to 02/08/2009 Chapter 5: The Market Strikes Back Problems and Exercises 1. A price ceiling is implemented in the market for housing in Metropolitan City, where all housing

### Chapter 9 The Analysis of Competitive Markets

Chapter 9 The Analysis of Competitive Markets Review Questions 1. What is meant by deadweight loss? Why does a price ceiling usually result in a deadweight loss? Deadweight loss refers to the benefits

### -1- Worked Solutions 5. Lectures 9 and 10. Question Lecture 1. L9 2. L9 3. L9 4. L9 5. L9 6. L9 7. L9 8. L9 9. L9 10. L9 11. L9 12.

-1- Worked Solutions 5 Lectures 9 and 10. Question Lecture 1. L9 2. L9 3. L9 4. L9 5. L9 6. L9 7. L9 8. L9 9. L9 10. L9 11. L9 12. L10 Unit 5 solutions Exercise 1 There may be practical difficulties in

### Price Discrimination: Exercises Part 1

Price Discrimination: Exercises Part 1 Sotiris Georganas Royal Holloway University of London January 2010 Problem 1 A monopolist sells in two markets. The inverse demand curve in market 1 is p 1 = 200

### Chapter 27: Taxation. 27.1: Introduction. 27.2: The Two Prices with a Tax. 27.2: The Pre-Tax Position

Chapter 27: Taxation 27.1: Introduction We consider the effect of taxation on some good on the market for that good. We ask the questions: who pays the tax? what effect does it have on the equilibrium

### Chapter 8 Application: The Costs of Taxation

Chapter 8 Application: The Costs of Taxation Review Questions What three factors must be taken into account in order to fully understand the effect of taxes on economic well-being? ANSWER: In order to

### Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected

Name: Solutions Cosumnes River College Principles of Macroeconomics Problem Set 11 Will Not Be Collected Fall 2015 Prof. Dowell Instructions: This problem set will not be collected. You should still work

### The Basics of Supply and Demand

1 Demand and Supply Curves 1 14.01 Principles of Microeconomics, Fall 2007 Chia-Hui Chen September 7, 2007 Lecture 2 The Basics of Supply and Demand BUYERS = DEMAND MARKET EQUILIBRIUM SELLERS = SUPPLY

### Recitation #5 Week 02/08/2009 to 02/14/2009. Chapter 6 - Elasticity

Recitation #5 Week 02/08/2009 to 02/14/2009 Chapter 6 - Elasticity 1. This problem explores the midpoint method of calculating percentages and why this method is the preferred method when calculating price

### Lecture 1: current account - measurement and theory

Lecture 1: current account - measurement and theory What is international finance (as opposed to international trade)? International trade: microeconomic approach (many goods and factors). How cross country

### I. Introduction to Taxation

University of Pacific-Economics 53 Lecture Notes #17 I. Introduction to Taxation Government plays an important role in most modern economies. In the United States, the role of the government extends from

### Module 2 Lecture 5 Topics

Module 2 Lecture 5 Topics 2.13 Recap of Relevant Concepts 2.13.1 Social Welfare 2.13.2 Demand Curves 2.14 Elasticity of Demand 2.14.1 Perfectly Inelastic 2.14.2 Perfectly Elastic 2.15 Production & Cost

### Summary. Chapter Five. Cost Volume Relations & Break Even Analysis

Summary Chapter Five Cost Volume Relations & Break Even Analysis 1. Introduction : The main aim of an undertaking is to earn profit. The cost volume profit (CVP) analysis helps management in finding out

### The level of price and inflation Real GDP: the values of goods and services measured using a constant set of prices

Chapter 2: Key Macroeconomics Variables ECON2 (Spring 20) 2 & 4.3.20 (Tutorial ) National income accounting Gross domestic product (GDP): The market value of all final goods and services produced within

III. INTERNATIONAL TRADE A. Gains from Trade -- a history of thought approach 1. The idea of mercantilism (15-175) argued that a country s well-being is directly tied to the accumulation of gold and silver.

### Problem Set 9 (75 points)

Problem Set 9 (75 points) 1. A student argues, "If a monopolist finds a way of producing a good at lower cost, he will not lower his price. Because he is a monopolist, he will keep the price and the quantity

### SURVEY OF ECONOMIC ASSISTANCE TO THE FISHING SECTOR. (Paper submitted by the Spanish authorities)

SURVEY OF ECONOMIC ASSISTANCE TO THE FISHING SECTOR Types of measures (Paper submitted by the Spanish authorities) Several methods have been proposed for assessing economic assistance to the fishing sector,

### INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK

UNIT EC407, LEVEL 2 INDUSTRIAL ECONOMICS COMPONENT: THE INTERACTIVE TEXTBOOK Semester 1 1998/99 Lecturer: K. Hinde Room: 427 Northumberland Building Tel: 0191 2273936 email: kevin.hinde@unn.ac.uk Web Page:

### (1) A reduction in the lump sum tax (2) A rise in the marginal propensity to import (3) A decrease in the marginal propensity to consume

S.7 Economics On 3 & 4-Sector Simple Keynesian Models S.7 Economics/3 & 4-sector Keynesian Models/p.1 95 #4 Which of the following would reduce the multiplier effect of investment on national income? (1)

### Section 1.5 Linear Models

Section 1.5 Linear Models Some real-life problems can be modeled using linear equations. Now that we know how to find the slope of a line, the equation of a line, and the point of intersection of two lines,

### Chapter 4 Specific Factors and Income Distribution

Chapter 4 Specific Factors and Income Distribution Chapter Organization Introduction The Specific Factors Model International Trade in the Specific Factors Model Income Distribution and the Gains from

### Price Discrimination: Part 2. Sotiris Georganas

Price Discrimination: Part 2 Sotiris Georganas 1 More pricing techniques We will look at some further pricing techniques... 1. Non-linear pricing (2nd degree price discrimination) 2. Bundling 2 Non-linear

### Jacob: If there is a tax, there is a dead weight loss; why do we speak of a social gain?

Microeconomics, sales taxes, final exam practice problems (The attached PDF file has better formatting.) *Question 1.1: Social Gain Suppose the government levies a sales tax on a good. With the sales tax,

### Lecture 10-1. The Twin Deficits

Lecture 10-1 The Twin Deficits The IS-LM model of the previous lectures endogenised the interest rate while assuming that the portion (NX 0 ) of net exports not dependent on income was exogenously fixed.

### Microeconomic FRQ s. Scoring guidelines and answers

Microeconomic FRQ s 2005 1. Bestmilk, a typical profit-maximizing dairy firm, is operating in a constant-cost, perfectly competitive industry that is in long-run equilibrium. a. Draw correctly-labeled