Consider countries A, B, and Cc. The distance between A and B is 1600 kilometers and between A and C, it is 700 kilometers. Country A's GDP is approximately equal to $6 trillion, country B $5 trillion, and country C $2 trillion. Use the gravity equation and compute the ratio of the expected volume of trade between A and C over the expected volume of trade between A and B. Assume that the distance elasticity is equal to 1.5.

Consider countries A, B, and Cc. The distance between A and B is 1600 kilometers and between A and C, it is 700 kilometers. Country A's GDP is approximately equal to $6 trillion, country B $5 trillion, and country C $2 trillion. Use the gravity equation and compute the ratio of the expected volume of trade between A and C over the expected volume of trade between A and B. Assume that the distance elasticity is equal to 1.5.

Principles of Macroeconomics (MindTap Course List)

8th Edition

ISBN:9781305971509

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 7PA

See similar textbooks

Similar questions

Consider a hypothetical world consisting of only three countries: Hungary, Australia, and Italy. Each country produces grain. Hungary is a small economy compared to Australia and Italy and thus cannot influence foreign prices. On the following graph, the supply and demand schedules of Hungary are shown as Sun and Dun. Foreign supply schedules of grain are perfectly elastic: Australia is a more efficient supplier of grain than Italy because its supply price is $1.00 per bushel (SAus), whereas Italy's supply price is $2.00 per bushel (Sita). PRICE (Dollars) 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0 Hun S +T S₁ +T S S + 0 3 6 A Scenario Free trade With tariff With customs union m SHu 12 15 18 21 24 27 30 GRAIN (Thousands of bushels) Calculate the quantity of bushels Hungary imports when the three nations engage in free trade. Enter this value in the first row of the following table. Also indicate which country Hungary imports from. ? Imports (Thousands of bushels) Imports…
Home’s domestic demand and supply curves for skateboards are D = 500 - 10P and S = 300 + 20P and Foreign’s domestic demand and supply curves for the same type of skateboard are D = 1000 – 10P and S = 200 + 40P. a. Find the autarky price and quantity for each country. If the countries trade, which country will export skateboards? b. Derive algebraically the import demand and export supply functions. Find the price and the volume of trade with free trade. c. Please show graphically the world equilibrium, equilibrium at Home, and at Foreign under free trade. d. Now the importer country imposes a tariff of $4 per skateboard. i. Determine and show graphically the effects.
Home's Domestic Demand and supply curves for shoes are D = 500-10P and S = 300+20P. Foreign's domestic demand and supply curves for the same type of shoes are D = 1000-10P and S = 200 + 40P. (a) Find the autarky price and quantity for each country. If the countries trade, which country will export shoes? (b) Derive algebraically the import demand and export supply functions. Find the price and volume of trade with free trade.
Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from foreign country. The import demand curve for good Y in home country is given by: MD = 170 – 2PY and the export supply curve for good Y in Foreign country is given by: EX = PY – 40. A) Consider the use of import tariff vs. import quota in Home country that will result in the same amount of good Y imports and the domestic price of good Y. If quota rents are given to Foreign country, which policy, i.e., import tariff vs. import quota, is preferable by Home country on the basis of its effect on social welfare? Explain your reasoning.
Consider a large country with a domestic demand characterized by the inverse demand function P=1000-Q. Domestic supply is represented by the equation P=400+Q. Finally, the world price of the good is 900. You know that an export tariff pass-through is 10%, meaning that foreign price decreases by 10% value of an export tariff t; more generally, 10% of any change in the domestic price is absorbed by the world market. a) Draw a diagram of a free trade case, label imports, consumer and producer surplus. b) Now you want to introduce export quota restrictions q. Calculate the value of the optimal export quota q, which maximizes domestic welfare. Illustrate CS, PS, QR, and DWL on your graph. Calculate their numerical values. c) Would you prefer to use an export quota or an export tariff? Explain why. Why do we see both instruments of trade policy being used? What are the advantages and disadvantages of export quotas compared to export tariffs?
Consider a large country with a domestic demand characterized by the inverse demand function P=1000-Q. Domestic supply is represented by the equation P=400+Q. Finally, the world price of the good is 900. You know that an export tariff pass-through is 10%, meaning that foreign price decreases by 10% value of an export tariff t; more generally, 10% of any change in the domestic price is absorbed by the world market. a) Draw a diagram of a free trade case, label imports, consumer and producer surplus. b) Now you want to introduce export quota restrictions g. Calculate the value of the optimal export quota q, which maximizes domestic welfare. Illustrate CS, PS, QR, and DWL on your graph. Calculate their numerical values.
Exporting countries Which of the following will be true, everything else remaining constant, for a country that exports some good? a)The greater the price elasticity of supply for the good in the exporting country, the greater the volume of exports. b) The more that consumers in the exporting country respond to a change in price, the greater will be the gains from trade. b) The smaller the price elasticity of demand and supply in the exporting country, the greater the gains from trade. c) Some domestic suppliers will lose surplus while others will gain surplus. Choose the statements that match the question and briefly explain your reasoning to understand the question better. Thankyou.
Quotas may affect the terms of trade of the country imposing them. The effect of quotas on the terms of tradedepends upon the elasticity of the foreign offer curves. True False
Home's demand curve for wheat isD= 100- 20P.Its supply curve isS= 20 + 20P.3. Home imposes a specie tariff of 0.5 on wheat imports.a. Determine and graph the effects of the tariff on the following: (1) the price ofwheat in each country; (2) the quantity of wheat supplied and demanded in each country; (3) the volume of trade.b. Determine the effect of the tariff on the welfare of each of the following groups:(1) Home import-competing producers; (2) Home consumers; (3) the Homegovernment.c. Show graphically and calculate the terms of trade gain, the efficiency loss, and thetotal effect on welfare of the tariff.
Suppose that a country implements a $20 tariff. Before the tariff, the country was importing 900 units of the good. After the tariff, the country imported 850 units of the good. What is the deadweight loss from the tariff? Assume that domestic supply and demand are linear.
5. A graphical comparison of tariffs and quotas Alagir and Ertil are small countries that protect their economic growth from rapidly advancing globalization by limiting the import of rugs to 20 million. To this end, each country imposes a different type of trade barrier when the world price (Pw) is $2,000. In Alagir, the government decides to impose a tariff of $3,000 per rug; in Ertil, the government implements a quota of 20 million rugs. Assume that Alagir and Ertil have identical domestic demand (Do) and supply (S) curves for rugs as shown on the following graph. Under these conditions, the price of rugs is $5,000 per rug in each country. 10000 ( ) 8000 8000 7000 8000 5000 4000 3000 2000 1000 0 0 Pu 10 Do 20 D₁ XX ✩ XX 30 40 50 60 70 QUANTITY (Millions of rugs) 80 S 90 100 (?)
Which of the following would help to reduce imports? Select one: a) A fall in quotas b) Increased borrowings c) Fall in subsidy to domestic firms d) A fall in tariffs e) Decreased import substitution