CAS EC 101 Lecture Notes - Lecture 12: Import Quota, Opportunity Cost, Comparative Advantage

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25 Oct 2017

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World price: price of a good that prevails in the world market for that good. Domestic price: opportunity cost of the good on the domestic market. Domestic equilibrium price before trade is below the world price. Domestic price rises to equal the world price. Domestic quantity supplied is greater than domestic quantity demanded. Tariff : tax on goods produced abroad and sold domestically. Raises domestic prices above world price by the amount of the tariff. Price rises by the amount of the tariff. Moves the domestic market closer to its equilibrium without trade. Domestic sellers are better off (producer surplus is greater) Domestic buyers are worse off (consumer surplus is smaller) Transfer of technological advances around the world. Trade with other countries destroys domestic jobs . The industry is vital for national security . When there are legitimate concerns over national security. New industries need temporary trade restriction to help them get started .

Related Questions

Suppose the market for oranges in a small country is closed to international trade. The domestic price is $3 per lb, at which 10,000 lbs are bought and sold in the country, while the world price is $4 per lb. If the country opens up to free trade with the world, the domestic quantity demanded at the world price will be 8,000 lbs, and the domestic quantity supplied at the world price will be 12,000 lbs.

A. Which of the following statements is true?

a. The country will become an importer of oranges because it has a comparative advantage in the production of oranges

b. The country will become an exporter of oranges because it has a comparative advantage in the production of oranges

c. The country will become an importer of oranges because the world has a comparative advantage in the production of oranges

d. The country will become an exporter of oranges because the world has a comparative advantage in the production of oranges

B. At what price (per lb.) will oranges be bought and sold in the country after opening up to trade?

a. $3

b. $4

c. $3.5

C. After opening up to trade, the level of exports/imports for the country will be:

a. 8,000 lbs.

b. 12,000 lbs.

c. 10,000 lbs.

d. 4,000 lbs.

D. How much (in $) is the net gain from trade for this country in opening up to free trade?

coralbadger702

2. Winners and losers from free trade

Consider the market for meekers in the imaginary economy of Meekertown. In the absence of international trade, the domestic price of a meeker is $21. Suppose that the world price for a meeker is $22. Assume that Meekertown is too small to influence the world price for meekers once they enter the international market.

If Meekertown allows free trade, then it will meekers.

Given current economic conditions in Meekertown, complete the following table by indicating whether each of the statements is true or false.

Statement	True	False
Meekertownian consumers are worse off under free trade than they were before.
Meekertownian producers are worse off under free trade than they were before.

True or False: When a country is too small to affect the world price, allowing for free trade will always increase total surplus in that country, regardless of whether it imports or exports as a result of international trade.

True

False

1. If we know that Canada exports maple syrup, we can conclude that maple syrup consumers in Canada are worse off than they would be in the absence of trade.

Is the statement true or false?

2. When a country opens up to trade in a good for which it has a comparative advantage, and the country begins to export the good, we can conclude that:

	a.	The domestic price will fall after trade opens up.
	b.	The total surplus for this good will increase as a result of opening up the market to international trade.
	c.	Opening the market to international trade will create a deadweight loss.
	d.	Both buyers and sellers in that country will be better off as a consequence of opening up the market to international trade.

cyanturtle416

CAS EC 101 Lecture Notes - Lecture 12: Import Quota, Opportunity Cost, Comparative Advantage

CAS EC 101 Full Course Notes

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