ps3-eco101-11f

ps3-eco101-11f - Economics 101 — Fall 2011 International...

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Unformatted text preview: Economics 101 — Fall 2011 International Trade Problem Set 3 November 15, 2010 Due: Tue, November 29, before 12:30pm Instructor: Marc-Andreas Muendler E-mail: [email protected] 1 Import Tariffs and Export Promotion in a Small Open Economy’s 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 country’s Terms of Trade change? How does the domestic price ratio change? How will the small open economy’s production pattern change? How will the small open economy’s 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 country’s Terms of Trade change? How does the domestic price ratio change? How will the small open economy’s pro- duction pattern change? How will the small open economy’s consumption and trade pattern change? How is welfare affected? Is there a differenceand trade pattern change?...
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This note was uploaded on 01/30/2012 for the course ECON 101 taught by Professor Jacobson during the Fall '03 term at UCSD.

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ps3-eco101-11f - Economics 101 — Fall 2011 International...

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