# HW_3 - price is \$10 b How do your answers in part b change...

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ECON 178: International Trade Spring 2009 Assignment #3 Due on Wednesday, June 3, before the class. 1. a. Which of the following two countries would you expect to have comparative advantage in current consumption, and which in future consumption goods? i. A country that leads the world technologically but is seeing that lead eroded as other countries catch up. ii. A country that has discovered the knack of producing industrial goods and is rapidly gaining on advanced countries. b. In the absence of international borrowing and lending, which of these two countries will have a higher real interest rate? Why? 2. Chapter 8 , Pages 201-202, Problems : Questions 1, 2. 3. Suppose that the domestic demand and supply for shoes in a small open economy are given by P = 100 – 2Q (demand) P = 4 + Q (supply) where P denotes price and Q denotes quantity. a) What are the levels of domestic production, consumption, and imports if the world

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Unformatted text preview: price is \$10? b) How do your answers in part b change if this country were to impose a tariff of \$3? 4 . Suppose that the domestic demand and supply for hats in a small open economy are given by Q = 100 –P (demand) Q = 50 +2P (supply) a) If the world price is \$10, what is the free trade level of imports? b) Suppose that the country imposes a quota of 11 units. Calculate and graph the following effects of this import quota: 1 1) The increase in the domestic price 2) The quota rents 3) The consumption distortion loss 4) The production distortion loss 5. True or false? Explain. Demonstrate graphically where appropriate. a) The more elastic (i.e., the flatter) the domestic supply curve, the higher the production distortion loss from any tariff. b) If a small open economy imposes an import quota, the social (welfare) costs of such quota will always exceed its benefits. 2...
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HW_3 - price is \$10 b How do your answers in part b change...

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