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quanda09 - Chapter 9 1 Use Exhibit 3 to answer the...

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Practice Questions to accompany Mankiw & Taylor: Economics 1 Chapter 9 1. Use Exhibit 3 to answer the following questions. Exhibit 3 a. If trade is not allowed, what is the equilibrium price and quantity in this market? Answer: Price = €4, quantity = 40 units. b. If trade is allowed, will this country import or export this commodity? Why? Answer: Export because the world price is above the domestic price which implies that this country has a comparative advantage in the production of this good. c. If trade is allowed, what is the price at which the good is sold, the domestic quantity supplied and demanded, and the quantity imported or exported? Answer: Price = €6, quantity supplied = 60 units, quantity demanded = 20 units, quantity exported = 40 units. d. What area corresponds to consumer surplus if no trade is allowed? Answer: A + B + C e. What area corresponds to consumer surplus if trade is allowed? Answer: A
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Practice Questions to accompany Mankiw & Taylor: Economics 2 f. What area corresponds to producer surplus if no trade is allowed?
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