1. Use the following information to answer the questions below. Please note that output of good X is measured in 100’s on the x axis, i.e. if you find Q = 10 then output is 10 × 100 = 1, 000 units. You must have a diagram to support you answers.
• Domestic Demand: P = 200 − 2Q
• Domestic Supply: P = 40 + 2Q
• Domestic Supply and Imports: P = 2Q
(a) Solve for equilibrium price and output in Autarky.
(b) Find the value of the consumer and producer surpluses in Autarky.
(c) Solve for equilibrium price when the country imports good X from abroad. How many units will be imported?
(d) Find the new values of the consumer and producer surpluses.
(e) Suppose the government imposes a $10 specific tariff on all imports of good X. What is the new price? How many units will consumers demand? How many units will be supplied by domestic producers? What is the value of the revenue collected by government.
2. Assume that Mexico places a tariff of 10% on all imported TVs. Mexico produces its own TVs but imports TV components valued at 50% of the cost of producing TVs. Use this information to answer the following:
(a) Find the ERP for each of the following tariffs on imported components; 5%, 10% and 15%.
(b) Repeat the exercise above assuming that the value of imported components is now 70% of production costs. Compared to the answers you got in part a, what can you say about the amount of protection that domestic producers receive when the tariffs on components change and when imported components as a percentage of production costs change, e.g. given a 10% tariff on components compare the ERPs when a = 50% and a = 70%. Draw conclusions based on what you have seen.
3 answers
The chart is titled U.S. Trade with Canada and Mexico, 1993-2013. Along the vertical axis, the chart is labeled Values of trade (in billions of dollars). The values start at zero and go up to 700 in hundreds. The horizontal axis is labeled Year. The first year is 1993 and the last is 2013. There are two bars for each year: Exports (in blue) and Imports (in purple). The values in billions for each year are as follows (note that all values are approximate, as the chart does not denote exact values:
1993: Exports 150, Imports 160
1995: Exports 170, Imports 200
1997: Exports 210, Imports 230
1999: Exports 250, Imports 300
2001: Exports 275, Imports 350
2003: Exports 275, Imports 360
2005: Exports 320, Imports 460
2007: Exports 390, Imports 520
2009: Exports 320, Imports 400
2011: Exports 480, Imports 580
2013: Exports 520, Imports 610
Use the chart to answer the question.
Which statement best summarizes the information on this chart?
A. Canada and Mexico imported more from the U.S. than they exported.
B. Over the 20 years shown, NAFTA greatly increased trade.
C. The United States exported more to Canada and Mexico than it imported.
D. The trade levels varied up and down over the 20 years shown.
0 answers