{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Homework 1

# Homework 1 - ARE 138 Winter 2011 M Whitney HOMEWORK 1 Due...

This preview shows pages 1–2. Sign up to view the full content.

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ARE 138 Winter 2011 M. Whitney HOMEWORK 1 Due at start of class Thursday, Jan 20th (16 ) 1. Two regions have the following supply and demand functions for a good: D"s=5000-50P"S S"5=-2000+100P“s DF=4000-80PF sF=-1,000+ 1500 PF a.(4) Assuming autarky (no trade possible), find the minimum, maximum and equilibrium price in each market, and the quantity produced /consumed. b. (6) If trade is opened, who will import and who will export? What range will the world price fall within? (verbal answer, before solving). Derive the import demand and export supply curves for this range of prices (write their formulas), checking to see whether either function is kinked in the relevant price range. Now, solve for the equilibrium world price. How much is produced, consumed, and exported or imported, in each country? c. (6) Sketch the import demand and export supply curves from part c, for the relevant price range. What is the net effect of ﬂee trade on each region's total social welfare? On world social welfare? Who gains, and who loses from trade within each country (verbal answer)? 2. (l 8) A small country has the following demand and supply for a good: (h refers to home country) D”: 10,000 - 1,000 P“ 8s = -2,000 + 2,000 P” a. (2) Find the maximum price, minimum price, market price and quantity under autarky. b. (12) Now suppose free trade is allowed. (country can trade at world price PW). Under what price condition will the ﬁrm become an exporter? Derive the country's export supply ﬁrnction, showing the equation for each segment of the supply function, the price range it applies to, and the quantity of exports that corresponds to the ’kink“. Under what price condition will the ﬁrm become an importer? Derive the country's import demand function, showing the equation for each segment of the function, the price range it applies to, and the quantity of imports that correSponds to the kink c. (4)Using your answer from part b, ﬁnd the quantity exported or imported by the home country, for the following world prices: \$12, \$7, \$3 and \$0.50. 3.(10) Imagine US demand for sugar is D“5 = 7,680 - 21,000 P, and domestic sugar supply is Sus = -320 + 4000P. Outside the US, the world sugar supply is perfectly elastic at PW = \$0.12. a. What is the US sugar price, quantity, and producer and consumer surplus under autarky? b. How much would be produced and consumed in the US if ﬁee trade was allowed? (Assume the US is a “small country” relative to the world sugar market). Now what are PS and CS? What is the US net welfare gain from trade? Who is likely to oppose this trade liberalization policy? c. Now assume the US allows sugar imports as in part b, but charges a tariff of \$.10/lb. on imports. Find the new US sugar price, production, consumption and PS and CS. Also, how much revenue does the US government make from the tariffs collected? d. What import quota could the US set to achieve the same domestic sugar price as in part c? In what way might social welfare differ as compared with the tariff result in part c? (6) 4. Imagine three countries have the following factor endowments: Country A Country B Country C Farmland 4000 200 100 Labor 1000 600 200 Capital 2000 300 600 These nations produce three products: grain (farmland-intensive), hand-knotted wool rugs (labor~ intensive) and heavy equipment (capital-intensive) 3. Calculate K/A, HA and K/L for each country. b. According to the Heckscher-Ohlin model, what general patterns of trade do you expect to see between these countries? ...
View Full Document

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern