ECON 040 Lecture Notes - Lecture 23: Takers, Economic Surplus, Comparative Advantage

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taupesardine275

30 Dec 2020

School

College of The Sequoias

Department

Economics (ECON)

Course

ECON 040

Professor

kasun

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Document Summary

Domestic price: represents the equilibrium price that would occur in a country if no international trade would occur. World price: world price represents the equilibrium price on the international market. Thus, they are price takers to the world price. Closed economy: a closed economy is an economy that does not engage in international trade known as an autarky. Open economy: an open economy is an economy that engages in international trade. Gains from trade: captures the extra total surplus available in an open economy situation compared to a closed economy. Occurs when domestic price is lower than the world price. This is a result of the domestic producer having a comparative advantage in producing a good. Domestic producers who see their total surplus increase because they can sell to international customers for a higher price. Domestic consumers who see an increase in the price of the good and as a result a fall in consumer surplus.

Related Questions

In the country of Wiknam, there is only one firm that produces and sells soccer ball. Initially, international trade is prohibited in the country. The following equations describe the monopolist's demand, marginal revenue, total cost and marginal cost: Demand: P = 10 - Q Marginal Revenue: MR = 10 - 2Q Total Cost: TC = 3 + Q + 0.5Q2 Marginal Cost: MC = 1 + Q Q stands for quantity and P is the price measured in Wiknamian dollars.

a) How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? Show all your calculations.

b) One day, the King of Wiknam decrees that henceforth, there will be free trade- either imports or exports- of soccer balls at the world price of $6. The firm now becomes a price taker in a competitive market. What happens to the domestic production of soccer balls? What happens to domestic consumption? Does Wiknam export or import soccer balls?

c) Suppose that the world price was not $6, but instead, happens to be exactly the same as the domestic price without trade as determined in part a) above. Would allowing trade change anything for the Wiknamian economy? Explain

purplewolf822

The demand for computers in a certain country is given by D = 20000 â 300P; where P is the price of a computer. Supply by domestic computers producers is S = 10000 + 100P.

(a) Assuming that the economy is closed, find the equilibrium price and production quantity of computers.

(b) The economy opens to trade. The world price of a computer is $20. Find the domestic quantities demanded and supplied and the quantity of imports or exports. Who will support the opening of the computer market to trade and who will oppose it?

(c) The government imposes a tariff of $1 per computer. Find the effects on domestic quantities demanded and supplied and on the quantity of imports or exports. Also find the tariff revenue collected by government. Who will support the imposition of tariff and who will oppose it?

(d) Suppose the government imposes an import quota of 1600 computers. Find the equilibrium price in the domestic computer market, as well as the quantities produced by domestic firms and purchased by domestic consumers.

Risk that is common to all assets (e.g., common stocks) of a certain type is referred to as

	systematic risk.
	unsystematic risk.
	idiosyncratic risk.
	structural risk.

In an efficient market with rational expectations, the actual price of an asset

Question 28 options:

	will equal its expected price.
	will often be below its expected price.
	will often be above its expected price.
	equals its expected price plus a random error term.

The efficient markets hypothesis

	assumes that market participants form their expectations adaptively.
	applies rational expectations to the pricing of assets.
	applies to the stock market, but not to the bond market.
	indicates that the stock market is efficient, but not rational.

In recent decades, the United States

	was essentially a closed economy.
	was generally a net borrower of foreign funds.
	was generally a net lender abroad.
	experienced a net outflow of savings.

Ms. Smith has 45% of her money in the stock of Green Corp. and the remainder of her money in Blue Corp. Based on historical data, the standard deviation for Green Corp. stock is 30% and the standard deviation for Blue Corp. is 15%. Security analysts estimate the correlation between Green and Blue as 0.55. What is the standard deviation of Ms. Smith's portfolio?

	0.112
	0.175
	0.037
	0.193

An open economy is one that

	has a large government sector.
	lends and borrows in the international capital market.
	produces mainly agricultural goods.
	produces mainly manufactured goods.

The world real interest rate is

	set annually by a special commission at the United Nations.
	set annually by a special commission at the International Monetary Fund.
	determined in the international capital market.
	determined daily on the New York Stock Exchange.

A small open economy

	is unable to affect the world real interest rate by its borrowing and lending decisions.
	will always be a net borrower from abroad.
	will always be a net lender abroad.
	is almost never able to borrow abroad.

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ECON 040 Lecture Notes - Lecture 23: Takers, Economic Surplus, Comparative Advantage

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