ECON216_Spring2011_Tutorials_Chapter_7_Questions_with_Solution

ECON216_Spring2011_Tutorials_Chapter_7_Questions_with_Solution

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

View Full Document Right Arrow Icon
ECON216 Tutorial Questions Chapter 7 1. Suppose that the autarky price of commodity X is $10 in Nation A, $8 in Nation B and $6 in Nation C, and Nation A is too small to affect prices in Nation B or C by trading. If Nation A initially imposes a nondiscriminatory ad valorem tariff of 100 percent on its imports of commodity X from Nations B and C, will Nation A produce commodity X domestically or import it from Nation B or Nation C? Answer 1. If Nation A imposes a 100 percent ad valorem tariff on imports of commodity X from Nation B and Nation C, Nation A will produce commodity X domestically because the domestic price of commodity X is $10 as compared with the tariff-inclusive price of $16 if Nation A imported commodity X from Nation B and $12 if Nation A imported commodity X from nation C. 2. Starting with the given of Problem1: a) If Nation A subsequently forms a customs union with Nation B, will Nation A produce commodity X domestically or import it from Nation B or Nation C? b) Will this customs union lead to any trade diversion? Why? Answer 2. a. If Nation A forms a customs union with Nation B, Nation A will import commodity X from Nation B at the price of $8 instead of producing it itself at $10 or importing it from Nation C at the tariff-inclusive price of $12. b.
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 03/19/2012 for the course ECON 215 taught by Professor Rodgers during the Three '08 term at University of Wollongong, Australia.

Page1 / 3

ECON216_Spring2011_Tutorials_Chapter_7_Questions_with_Solution

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online