ECON 340 Exam 2 Study Guide

ECON 340 Exam 2 Study Guide - ECON 340 Exam 2 Study Guide...

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ECON 340 Exam 2 Study Guide CH 6 - 3. This question asks you to analyze the effects of removal of a tariff on imported oranges. The following table summarizes the situations in the orange market with and without the tariff. The first column describes the situation with a $4.00-per-bushel tariff on oranges. The second column represents the situation after the tariff is removed. You may assume that transportation costs are zero and that the supply and demand curves are straight lines. With $4.00 Tariff With Free Trade World Price of Oranges ($/Bushel) $12.00 $12.00 Tariff Per Bushel ($/Bushel) $4.00 $0.00 Domestic Price of Oranges ($/Bushel) $16.00 $12.00 Oranges consumed domestically 24 8 (million bushels/year) Oranges produced domestically 8 6 (million bushels/year) a. Illustrate the effects of removal of the tariff. Label the free-trade and tariff equilibria in terms of consumption, domestic production, imports, and domestic and world prices. b. Estimate the amount domestic consumers gain from removal of the tariff. Show and explain your work. c. Estimate the amount of the net effect on the country’s welfare from removal of the tariff. Show and explain your work. d. In this case, would the optimal import tariff on oranges be negative, zero, or positive? Why? Under what assumptions is the “optimal” tariff really optimal? CH 6 - 4. Country A is labor abundant and practices unrestricted trade with the rest of the world. The country’s
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new minister for trade proposes an import tariff, claiming that such a policy would raise wages relative to the return to capital. Do you agree? Why or why not? CH 6 – 5. Fore each of the following, how do tariffs affect the distribution of income? a. According to the World Bank, per-capita incomes in France and Bangladesh in 2001 were $24,080 and $1,600, respectively. The United States imported approximately $30 billion worth of goods from France and $2.4 billion from Bangladesh. The United States collected $330 million in tariff revenue from its imports from France and $331 million on those from Bangladesh.
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