Principles_HWsolution_ch9

Principles_HWsolution_ch9 - Suggested Answers for Mankiw,...

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1 Suggested Answers for Mankiw, Chapter 9, Problem 5, 10, 12 5. a. The world wheat price must be below the U.S. no-trade price because wheat farmers oppose NAFTA. They oppose it because they know that when trade is allowed, the U.S. price of wheat will decline to the world price, and their producer surplus will fall. The world corn price must be above the U.S. no-trade price, because corn farmers support NAFTA. They know that when trade is allowed, the U.S. price of corn will rise to the world price, and their producer surplus will rise. b. Considering both markets together, NAFTA makes wheat farmers worse off and corn farmers better off, so it is not clear whether farmers as a whole gain or lose. Similarly, consumers of wheat gain (because the price of wheat will decline) and consumers of corn lose (because the price of corn will rise), so consumers as a whole may either gain or lose. However, we know that the total gains from trade are positive, so the United States as a whole is better off. 10. a. When a technological advance lowers the world price of cameras, the effect on the United States, an importer of cameras, is shown in Figure 10. Initially the world price of televisions is
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This note was uploaded on 04/23/2010 for the course ECONOMICS 2312 taught by Professor William during the Spring '09 term at 東京大学.

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Principles_HWsolution_ch9 - Suggested Answers for Mankiw,...

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