Assume that there are two countries in the world: Home and Foreign. Home’s demand curve for...

Assume that there are two countries in the world: Home and Foreign. Home’s demand curve for wheat is D = 125 - 25P and supply curve is S = 20 + 40P. Suppose that Foreign is a much larger country, with domestic demand D* = 1100 - 300P and supply S* = 650 + 200P.

a) What would the price of wheat be in case of no trade in Home? b) What would the price of wheat be in case of no trade in Foreign?

Now assume that Home and Foreign can trade with each other (no barriers, i.e. free trade).

c) Derive the Home import demand curve equation (no graph required) d) Derive the Foreign export supply curve equation (no graph required) e) Calculate the free trade equilibrium world price of wheat
f) Calculate the free trade equilibrium world trade volume (quantity)

Now assume that Home imposes a specific tariff of 0.3 on wheat imports.

g) Calculate the price of wheat in Foreign in case of the tariff
h) Calculate the price of wheat in Home in case of the tariff
i) Calculate the volume of trade (quantity) in case of the tariff
j) Explain why the volume of trade decreases with imposing the tariff
k) Explain (no graph or calculations required) who gains and who loses from imposing the tariff in case of each of the following groups: Home import-competing producers, Home consumers, Home government.

Answer to E-K)

Expert Solution

Rahul Sunny answered 6 months ago

Consider two countries, Home and Foreign. Home’s demand for sugar is ??/d =60,000−400?. Home not only...

Consider two countries, Home and Foreign. Home’s demand for sugar is ??/d =60,000−400?. Home not only produces sugar domestically, but also imports sugar from Foreign. Home’s supply of sugar is ? ?/s=20,000+500 ? and Foreign’s supply of sugar to Home is ? ?/s =20,000+100?. a. With sugar available from Home and Foreign, what is Home’s market price of sugar? b. How much is produced by Home’s producers at Home’s market price? c. Suppose an import quota of 13,000 is imposed...

The world consists of two countries: Home and Foreign. We observe supply and demand curves in...

The world consists of two countries: Home and Foreign. We observe supply and demand curves in both countries: D= 50-25P and S=25P in Home D* = 200-25P* and S* = 25P-50 in Foreign a) Derive MD (import demand) and XS (export supply) curves. b) Graph MD and XS. Find the world equilibrium (price and quantity) under free trade. c) Suppose that importer imposes a tariff t = 2. Find the new prices in Home and Foreign. How will the volume...

Consider international trade in a world with two countries, Home and Foreign, and a single good....

Consider international trade in a world with two countries, Home and Foreign, and a single good. At Home, the demand is D = 500 - 2P and the supply is S = 200 + 4P. At Foreign, the demand is D* = 600 - 2P and the supply is S* = 360 + 2P. How do I find the consumer and producer surplus in autarky?

There are two countries, Home and Foreign. The two countries are identical except that Home has...

There are two countries, Home and Foreign. The two countries are identical except that Home has a labor force of 100 and Foreign has a labor force of 200. Given this allocation of labor across Home and Foreign, the value of the marginal product of labor in Home is 30 and the value of the marginal product of labor in Foreign is 20. If labor were to be free to move, the wage in both countries would be25. fi mmigration...

There are two countries, Home and Foreign. The two countries are identical except that Home has...

There are two countries, Home and Foreign. The two countries are identical except that Home has a labor force of 100 and Foreign has a labor force of 200. Given this allocation of labor across Home and Foreign, the value of the marginal product of labor in Home is 30 and the value of the marginal product of labor in Foreign is 20. If labor were to be free to move, the wage in both countries would be 25. What...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth and tablet computers. The production of both goods uses capital and labor in fixed proportions, with the tablets industry using more capital per worker than the cloth industry. The units of each input needed to produce one unit output are given by: capital Labor Cloth 1 2 Tablets 2 1 Both countries have 150 units of capital available for production, but the Home country...

Assume that there are two countries: home and foreign. Home and foreign levels of production are currently equal to full employment and the exchange rate is flexible.

Assume that there are two countries: home and foreign. Home and foreign levels of production are currently equal to full employment and the exchange rate is flexible. Then there is a permanent expansion in the level of home’s government purchases. What are the effects abroad on income, prices, and the exchange rate?

Consider a specific-factors world consisting of two countries, Home (H) and Foreign (F), and two goods,...

Consider a specific-factors world consisting of two countries, Home (H) and Foreign (F), and two goods, coffee (C) and doughnuts (D). Home has 120 units of labour that are mobile between industries and immobile internationally, some capital owners that are involved in doughnut production and some landowners that are involved in coffee production. Capital and land is immobile between industries and internationally. The marginal product of labour in each industry is given by MPLC = 120 − LC and MPLD...

Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is...

Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is specific to timber, capital is specific to televisions, and labor is free to move between the two industries. When the Home country moves into doing free trade with the Foreign country, the Home country exports timber. True or False. Explain 1. The Home country produces only timber under free trade. 2. Going from closed economy to free trade, the opportunity cost of TV increases...

Assume a Ricardian model with two countries, Home and Foreign, that both produce coffee and tea....

Assume a Ricardian model with two countries, Home and Foreign, that both produce coffee and tea. Home has 600 units of labor (L) available. Home’s unit labor requirement in the production of coffee is aLC = 4, while in the production of tea it is aLT = 3. Foreign has 800 units of labor (L*) available. Foreign’s unit labor requirement in the production of coffee is a*LC = 2, while in the production of tea it is a*LT = 1....

Question

Assume that there are two countries in the world: Home and Foreign. Home’s demand curve for...

Solutions

Expert Solution

Related Solutions

Consider two countries, Home and Foreign. Home’s demand for sugar is ??/d =60,000−400?. Home not only...

The world consists of two countries: Home and Foreign. We observe supply and demand curves in...

Consider international trade in a world with two countries, Home and Foreign, and a single good....

There are two countries, Home and Foreign. The two countries are identical except that Home has...

There are two countries, Home and Foreign. The two countries are identical except that Home has...

Consider a world with two countries, Home and Foreign, both able to produce two goods: cloth...

Assume that there are two countries: home and foreign. Home and foreign levels of production are currently equal to full employment and the exchange rate is flexible.

Consider a specific-factors world consisting of two countries, Home (H) and Foreign (F), and two goods,...

Suppose two countries, home and foreign, produce two goods, timber and televisions. Assume that land is...

Assume a Ricardian model with two countries, Home and Foreign, that both produce coffee and tea....