PROBSET1 - PROBLEMSET1...

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PROBLEM SET 1 Pugel 12 “Questions and Problems,” pp. 31-32: 1*,2, 3 , 4, 5 , 6, 7 Answers in back of textbook ADDITIONAL PROBLEMS 1. Suppose that the  domestic markets for tulips  in the nations of  Roseland  and  Chrysanthemum  can be depicted by the demand and supply  diagrams below: Roseland's Tulip Market $0 $5 $10 $15 $20 $25 $30 $35 0 1 2 3 4 5 6 7 8 9 10 11 Dozens of Tulips (Q) Price of Tulips per Dozen D S Chrysanthemum's Tulip Market $0 $5 $10 $15 $20 $25 $30 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Dozens of Tulips (Q) Price per Dozen D S
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a. Assuming that the two countries decide to allow free international trade in  tulips , derive the international demand curve and supply curve for tulips  using the diagram below: INTERNATIONAL TULIP MARKET Price per Dozen       $20       $15       $10         $5    0   1   2   3   4   5   6   7   8   9   10   11   12           Dozens of Tulips b. Which country  imports  tulips and which country  exports  tulips?  How many tulips will be traded  and what will be the  price  of tulips  internationally? 2
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2. If free trade is allowed , U.S. lumber companies make 52 billion board- feet of lumber each year, of which 42 billion board-feet are sold in the United  States.  The average price is $.30 per board-foot.   If lumber exports are   banned by law , production (for the domestic market only) is 48 billion board-feet,  and the price drops to $.25 per board-foot.  This is illustrated in the graph below: Price ($ per board-foot) S  $.30     a     b      c  $.25       D 42    48  52   Quantity (bil. of board- feet) a. Assuming trade is allowed, calculate the amount of  exports  and label  in the appropriate place on the diagram above. b. Calculate the  loss  in  producer surplus  from the  export ban . c. Calculate the  gain  in  consumer surplus  from the  export ban . d. Does the U.S. experience a  net gain  or  net loss  if it bans exports of  lumber? 3 Price with  export ban
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3. Consider the graphs of the domestic markets for  bread  in the hypothetical  countries of  Leinster  and  Saxony : a.   If there is no trade allowed  between the two countries, what will be the  price of a loaf of bread in each country ?  How much will domestic residents  consume and produce in each country ?
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PROBSET1 - PROBLEMSET1...

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