Question

In: Economics

Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign...

Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign country exports pomegranates (the size of Foreign is not important for this question). What would happen to the equilibrium world price of pomegranates if demand for pomegranates in the Foreign country's market increases?

a.The equilibrium world price will increase

b.The equilibrium world price will decrease

c.The equilibrium world price will not change

part2

Imagine two countries are trading flower pots. The Home country is “large” and imports flower pots. The Foreign country exports flower pots (the size of Foreign is not important for this question). Because Home is large,

a.Home welfare will always increase as a result of instituting a tariff on flower pots.

b.Home will always pay a smaller fraction of a tariff they institute on flower pots, relative to the fraction Foreign pays.

c.there exists an optimal tariff that Home can institute on flower pots that will maximize their welfare.

d.Home will always pay a larger fraction of a tariff they institute on flower pots, relative to the fraction Foreign pays.

part3

Which of the following assumptions in the Ricardian model is most responsible for the laborers' wages being equal between the cheese and wine industries?

a.Labor can move costlessly between industries

b.Labor is paid their productive value

c.There are only two goods: Cheese and Wine

d.The countries have the same homothetic preferences

Solutions

Expert Solution

Q1. Imagine two countries are trading pomegranates. The Home country is “large” and imports pomegranates. The Foreign country exports pomegranates (the size of Foreign is not important for this question). What would happen to the equilibrium world price of pomegranates if demand for pomegranates in the Foreign country's market increases?

Answer- (a) The equilibrium world price will increase

Q2. Imagine two countries are trading flower pots. The Home country is “large” and imports flower pots. The Foreign country exports flower pots (the size of Foreign is not important for this question). Because Home is large,

Answer- (c) There exists an optimal tariff that Home can institute on flower pots that will maximize their welfare.

Q3. Which of the following assumptions in the Ricardian model is most responsible for the laborers' wages being equal between the cheese and wine industries?

Answer- (c) There are only two goods: Cheese and Wine

Rahul Sunny answered 7 months ago
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