How many units will it import and what will be the domestic price of this product in country A?

/in /by

Macro & Micro economics

International Economics: Problem Solving

QUESTION 1

Answer questions below based upon the following information about country A’s market
for its importable.
Country A’s supply curve: P = 0.5Q
Country A’s demand curve: P= 40 – 0.25Q
whereP denotes price and Q denotes quantity

Suppose that country C would be willing to export the product to A for $15 per unit,
while country B, the low-cost world producer, is willing to export at a price of $10.

Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of the
product imported from countries B and C if the above tariff is imposed, respectively.

(a) Illustrate this market in country A on a demand and supply diagram. (Please show
all the intercepts). Let the lines SB and SC denote the export supply curves to A’s
market from countries B and C, respectively.

(b) Under free trade, from whom country A import this product? How many units
will it import and what will be the domestic price of this product in country A?

(c) If A imposes a per unit tariff of $10 on imports from country B, from whom will
it import this product? How many units will it import and what will be the
domestic price of this product in country A? Show your calculations and graph.
Let the lines (SB + tariff) denote the domestic price of the product imported from
country B if the above tariff is imposed.

(d) If A imposes a per unit tariff of $10 on imports from country C, from whom will
it import this product? How many units will it import and what will be the
domestic price of this product in country A? Show your calculations and graph.
Let the lines (SC + tariff) denote the domestic price of the product imported from
country C if the above tariff is imposed.

(e) If A imposes a per unit tariff of $10 on imports from both B and C, from whom
will it import this product? How many units will it import and what will be the
domestic price of this product in country A? Show your calculations and graph.
Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of
the product imported from countries B and C if the above tariff is imposed,
respectively.

Question 2: Quotas

The United States has used quotas to protect its domestic sugar industry. What has been
the likely impact of these quotas on the world price of sugar (relative to the price that
would exist under free trade)? Explain.

Question 3: NAFTA

In your opinion, why was the formation of NAFTA so controversial in the US, while the
formation of Canada-US FTA was little noticed by most Americans?