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Unformatted text preview: Economics 101 Fall 2010 International Trade Problem Set 3 November 16, 2010 Due: Tue, November 30, before 12:30pm Instructor: Marc-Andreas Muendler E-mail: firstname.lastname@example.org 1 Import Tariffs and Export Promotion in a Small Open Economys General Equilibrium A small open economy produces cars and grows food with some unspecified number of factors of production. The opportunity costs of car production in terms of food change with the production pattern but are lower than those of its trading partners. Draw a production possibility frontier that is consistent with the above assumptions. Depict an initial world trade equilibrium and the consumption possibilities of the small open economy, consistent with the above assumptions. Suppose the small open economy imposes a tariff on its imports. How do the countrys Terms of Trade change? How does the domestic price ratio change? How will the small open economys production pattern change? How will the small open economys consumption and trade pat- tern change? How is welfare affected? Suppose the small open economy promotes its exports with a cost subsidy to exporters. How do the countrys Terms of Trade change? How does the domestic price ratio change? How will the small open economys pro- duction pattern change? How will the small open economys consumption and trade pattern change? How is welfare affected? Is there a differenceand trade pattern change?...
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- Spring '03