Answers II

Chapter 2

1.

a.

MRT = 0.33 (steel for aluminum) for Canada

MRT = 1.50 (steel for aluminum) for France

b.  Canada should produce aluminum since it has the lower MRT.  France should produce steel.

c.  1 aluminum = 0.33 - 1.50 steel

d. 

.

2.

a. 

Japan = 150 / 140 *100 = 107

Canada = 175 / 175 * 100 = 100

Ireland = 167 / 190 = 88

b.

Japan's terms of trade improved by 7 percent over this period.

Canada's terms of trade was unchanged over this period.

Ireland's terms of trade worsened by 12 percent over this period.

Chapter 3

3.

a. 

Taiwan:  P = 15.00, Q = 600

South Korea:  P = 30.00, Q = 800

b.  P = 22.50, 600 calculators would be traded from Taiwan to South Korea

Taiwan:  900 calculators produced, 300 calculators consumed

South Korea:  500 calculators produced, 1,100 calculators consumed

c.  P = 20.00 in Taiwan, P = 25.00 in South Korea

Taiwan:  800 calculators produced, 400 calculators consumed, 400 exported

South Korea:  600 calculators produced, 1,000 calculators consumed, 400 imported

Chapter 4

4.  e = [0.20 - (0.10)(0.10)] / [1 - 0.10] = 0.21

.

5. 

a.

(1) P = 300, Q = 20

(2)

CS = 1/2 * 20 * (500 - 300) = 2000

PS = 1/2 * 20 * (300 - 100) = 2000

b.

(1) Price = 100 => produced = 0, consumed = 40, imported = 40

(2)

CS = 1/2 * 40 * (500 - 100) = 8000

PS = 0

c. 

(1) Price = 200 => produced = 10, consumed = 30, imported = 20

(2) 

Consumption effect = 1/2 * (40 - 30) * (200 - 100) = 500

Protective effect = 1/2 * (20 - 10) * (200 - 100) = 500

Redistributive effect = 1/2 * (10 - 0) * (200 - 100) = 500

Revenue effect = (30 - 10) * (200 - 100) = 2000

.

6.

a.  P = 400, produced = 2, consumed = 12, imported = 10

b.  Add 300 to the price for each Quantity Supplied - Domestic + Imports

(1)  P = 600, produced = 4, consumed = 8, imports = 4

(2) 

Consumption effect = 1/2 * (12 - 8) * (600 - 400) = 400

Protective effect = 1/2 * (4 - 2) * (600 - 400) = 200

Redistributive effect = (2 - 0) * (600 - 400)  + 1/2 * (4 - 2) * (600 - 400) = 600

Domestic revenue effect = (8 - 4) * (600 - 400) = 800

(3)  Deadweight loss = consumption effect + protective effect = 400 + 200 = 600

(4)  The price paid by consumers is 600, but that includes a tariff of 300.  Foreign producers only receive 300.

Terms-of-trade effect = (8 - 4) * (400 - 300) = 400

Terms-of-trade effect < deadweight loss => welfare in U.S. decreased