3.17.2016 Slides - Effects of a Rise in the Relative Price...

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Effects of a Rise in the Relative Price o f Cloth and Gains from Trade
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Terms of Trade & National Welfare A country’s terms of trade are defined as : TOT = Pexport/Pimport (price indexes) If TOT rise and the country exports cloth, what would happen? The country’s TOT improved The production of cloth rises The isovalue line becomes steeper and a higher indifference curve can be reached (welfare incr eased). Conclusion: When a country’s TOT improve, it s welfare increases
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Equilibrium Relative Price with Trade and Assoc iated Trade Flows
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Equilibrium Relative Price with Trade and Associated Trade Flows
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FIGURE 6-6 The Effects of a Tariff on Ethanol Without a tariff on ethanol, U.S. producers will sell 3.0 billion gallons of ethanol, U.S. consumers will purchase 9.0 billion gallons, and imports will be 6.0 billion gallons. The U.S. price will equal the world price of $1.00 per gallon. The $0.50-per-gallon tariff raises the price of ethanol in the United States to $1.50 per gallon, and U.S.
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