In an open trading environment, world prices of a good may be different than domestic prices....

In an open trading environment, world prices of a good may be different than domestic prices. Discuss and show graphically how the difference in world versus domestic prices would lead to a country’s exports and imports.

Expert Solution

Rahul Sunny answered 2 years ago

Suppose the world price for a good is lower than the domestic price without trade. Explain...

Suppose the world price for a good is lower than the domestic price without trade. Explain the two sources of deadweight loss arising from a tariff. IMPORTANT: I know that the two sources of deadweight loss arising from tariffs are inefficent production and lost transactions. However, I don't know why that is. Could you please explain to me why inefficent production and lost transactions are the two sources of deadweight loss arising from tariffs when the world price for a...

Suppose that the world price for a good is 50, and the domestic demand and supply...

Suppose that the world price for a good is 50, and the domestic demand and supply curves are given by the following equations: DX: PD=100-4QD SX: PS=10+6QS How much is consumed? How much is produced domestically? What are the values of producer and consumer surplus? If a 5% import tariff is imposed, by how much do consumption and domestic production change? What is the change in consumer and producer surplus? How much revenue does the government earn from the tariff?...

Suppose that the world price for a good is 120 and the domestic demand-and-supply curves are...

Suppose that the world price for a good is 120 and the domestic demand-and-supply curves are given by the following equations: Demand: P = 200 – 8Q Supply: P = 20 + 10Q a. How much is domestic consumption? b. How much is domestic production? c. Calculate the values of consumer and producer surplus. d. If a tariff of 30% is imposed, how much do consumption and domestic production change? e. What is the...

Suppose the world price of bicycles is below the domestic price in a small open economy....

Suppose the world price of bicycles is below the domestic price in a small open economy. d. (3) Define and give an example of consumption dead weight loss e. (3) Define and give an example of production dead weight loss. 2. (4) Give two reason why a nation might have import product standards? 3. (4) What is mercantilism? Is trade a zero-sum game?

Suppose a country is exporting good X and importing good Y at current world prices. a....

Suppose a country is exporting good X and importing good Y at current world prices. a. Draw and carefully label a PPF-indifference curve diagram showing this situation. b. Explain, in both words and in a copy of your graph from part a., how a change in consumer tastes, everything else held constant, can cause this country to: i) not trade anymore and ii) become an importer of good X and exporter of good Y.

a. In a small open economy, the domestic real interest rate can be higher than the...

a. In a small open economy, the domestic real interest rate can be higher than the world real interest rate. Answer true, false, or uncertain. Please briefly explain your answer. b.Consider a country that is initially in steady state. According to the Solow–Swan model, if the technology parameter A increases but the saving rate falls, then the per capita capital stock increases and the country moves to a new, higher steady state level of per capita income. Answer true, false,...

If a good sold for different prices in different locations, then why would trade be likely?...

If a good sold for different prices in different locations, then why would trade be likely? What would likely happen to prices and employment with trade? Why?

Using the Open Systems Model as a framework, explain how a domestic business is different from...

Using the Open Systems Model as a framework, explain how a domestic business is different from an international business.

Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world...

Consider the open-economy loanable funds model with flexible prices and capital mobility. Suppose that the world consists of a small open economy (we call this domestic) and the rest of the world (we call this foreign). Answer the following questions with the aid of figures where appropiate. a. How does an increase in domestic government expenditure affect trade valance and real exchange rate? b. How does an increase in foreign government expenditure affect the trade balance and the real Exchange...

In Mankiw’s model of a small open economy, domestic interest rates are set by the world’s market for loanable funds, rather than by domestic saving and investment.

In Mankiw’s model of a small open economy, domestic interest rates are set by the world’s market for loanable funds, rather than by domestic saving and investment.a. What are the two simplifying assumptions in the model that disconnect domestic interest rates from domestic saving and investment? b. What is determined by domestic saving and investment in the model?

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