EC120 Chapter 9: EC120 – CHAPTER 9

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29 Nov 2017

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The equilibrium without trade: with no international trade, the domestic price of a product adjusts to balance the quantity supplied by domestic sellers and the quantity demanded by domestic buyers. The world price and comparative advantage: world price: the price of a good that prevails in the world market for that good. If the price of a domestic good were lower than the world price, the country would become an exporter of said good (country has a comparative advantage in the product). However, the gains of the winners exceed the loss of the losers trade can make everyone better off. The total deadweight loss is the sum of the overproduction of the product (increase in supply), and the under consumption of the product (decrease in demand) Increased variety of goods: goods produced in different countries are not exactly the same, and thus consumers have more options (e. g.

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

A country has a comparative advantage in a product if the world price is

a) not subject to manipulation by organizations that govern international trade.

b) equal to that country's domestic price without trade.

c) lower than that country's domestic price without trade.

d) higher than that country's domestic price without trade

periwinkleraccoon781

1. An import tariff

a. lowers the domestic price of the exported good below the world price.

b. keeps the domestic price of the exported goods the same as the world price.

c. raises the domestic price of the imported good above the world price

d. lowers the domestic price of the imported good below the world price.

2. Which two accounts are included in the balance of payments:

a. current account and the reserve account.

b. current account and the trade account.

c. current account and the capital account.

d. trade account and the capital account.

3. A producer has a comparative advantage in the production of a good when the producer:

a. has a production cost that is less than sales revenue.

b. has the highest cost of production compared to any other producer.

c. is comparatively more efficient at producing the good than it is at producing anything else.

d. specializes through the use of an assembly line.

4. According to the Fischer effect, if the "real" rate of interest in a country is 4 percent and expected annual inflation is 9 percent, the "nominal" interest rate will be _____.

5 percent

B.	13 percent

9 percent

36 percent

bluetortoise611

EC120 Chapter 9: EC120 – CHAPTER 9

EC120 Full Course Notes

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