Principles_OTHERsolution_ch9

Principles_OTHERsolution_ch9 - Suggested Answers for...

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1 Suggested Answers for Mankiw, Chapter 9, “Other” Problems 1. a. In Figure 3, with no international trade the equilibrium price is P 1 and the equilibrium quantity is Q 1 . Consumer surplus is area A + B + C and producer surplus is area D + E, so total surplus is A + B + C + D + E. Figure 3 b. When the Italian apple market is opened to trade, the new equilibrium price is P W , the quantity consumed is Q D , the quantity produced domestically is Q S , and the quantity exported is Q S Q D . Consumer surplus decreases from A + B + C to A. Producer surplus increases from D + E to B + C + D + F. Total surplus changes from A + B + C + D + E to A + B + C + D + E + F, an increase of F. 2. a. Figure 4 illustrates the Canadian market for wine, where the world price of wine is P 1 . The following table illustrates the results under the heading " P 1 ." P 1 P 2 CHANGE Consumer Surplus A + B + D + E A + D –(B + E) Producer Surplus C B + C +B Total Surplus A + B + C + D + E A + B + C + D –E b. The shift in the Gulf Stream destroys some of the grape harvest in Europe and raises the world price of wine to P 2 . The table shows the new areas of consumer, producer, and total surplus, as well as the changes in these surplus measures. Consumers lose, producers win, and Canada as a whole is worse off.
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2 Figure 4 3. The impact of a tariff on imported autos is shown in Figure 6. Without the tariff, the price of an auto is P W , the quantity produced in the United States is Q 1 S , and the quantity purchased in the United States is
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Principles_OTHERsolution_ch9 - Suggested Answers for...

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