Question

True or False - why?

1. Japan is a wheat importer that represents a small share in the world demand for wheat. Japan lowers its wheat tariff from 20% to 10%.

Question: Japanese consumption of wheat increases as a result of the tariff reduction.

2. Japan is a wheat importer that represents a small share in the world demand for wheat. Japan lowers its wheat tariff from 20% to 10%.

Question: The world price of wheat falls

3. Suppose the United States heavily subsidizes the production of rice by providing water to rice growers at rates considerably below market prices. Rice production is a constant returns to scale technology, the US is the largest producer of rice in the world, and the subsidized rice is consumed in both the United States and Japan.

Question: Total Japanese welfare is harmed by the subsidy because it drives Japanese farmers out of business.

Answer 1

TRUE/FALSE------

#Q(1)--- Japanese Consumption of wheat Increases as a result of the tariff reduction.

Ans--- TRUE

Explanation-----

An import tariff Increases the price of imported products,due to which domestic consumption of such goods decreases. When the govt reduces such import tariff ,the imported goods become a little bit cheaper than earlier., that's why the Consumption of imported goods Increases in domestic country.

This is the same what happens in Japan when the govt reduces Import tariff on wheat from 20% to 10%

#Q2)--- The world price of wheat falls

Ans--- FALSE

Explanation-----the world price of wheat will rise instead.

The reason is , as the demand for wheat has increased in Japan due to reduction in Imports tariff on wheat, as a result the world price of wheat will rise .Here law of demand will apply which states that there is inverse relationship between price and quantity demanded .

#Q(3) Total Japanese welfare is harmed by the subsidy because it drives Japanese farmers out of business.

Ans--- TRUE

Explanation-----

With more subsidy by US govt to domestic rice producers, the price of rice will go down, As, US is leading exporter of rice in the world, all countries with open economy including Japan will import rice more.

In Japan, there will be more demand for American rice as people will prefer American rice ,which are cheaper than domestically produced rice.It will reduce sale of domestic rice, and japanese farmers will be out of business dur to huge losses.In short total Japanese welfare will be harmed.