Ch10Solutions - Homework 10 Chapter 10 Solutions 3 a Consumers benefit from open trade if the product is imported because it lowers the price

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Homework 10 Chapter 10 Solutions 3. a) Consumers benefit from open trade if the product is imported because it lowers the price. Figure 3a b) Consumers are hurt from open trade if the product is exported because it increases the price. Figure 3b
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c) Producers are hurt from open trade if the product is imported because it lowers the price they receive. Figure 3c d) Producers benefit from open trade if the product is exported because it increases the price they receive. Figure 3d
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e) The economy as a whole improves from open trade because greater surplus is earned from both imported and exported goods (see net increase in total economic surplus in imports – figure 3e.1 - and exports – figure 3e.2). Figure 3e.1 Figure 3e.2
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4. a) Domestic ethanol producers will be hurt by removing the tariff because this will lower the price of ethanol causing domestic producers to reduce production, which will lead to the closing of refineries and the elimination of jobs. b) A tariff causes imports to decline relative to the case of open trade, as demonstrated in figure 4b.1. A tariff causes the domestic ethanol price to increase, which makes consumers strictly worse off (lower CS – see figure 4b.2), producers strictly better off (greater PS – see figure 4b.3), and makes the economy worse off (lower total economic surplus – see figure 4b.4) Figure 4b.1 Figure 4b.2
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Figure 4b.3 Figure 4b.4 c) A tariff causes the domestic price of ethanol to increase. If ethanol is an input into gasoline
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This note was uploaded on 02/16/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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Ch10Solutions - Homework 10 Chapter 10 Solutions 3 a Consumers benefit from open trade if the product is imported because it lowers the price

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