Question 1

Figure 9-9 
-Refer to Figure 9-9. Producer surplus in this market after trade is
A)A.
B)A + B.
C)B + C + D.
D)C.

Accepted Answer

Producer surplus is the area above the supply curve and below the market price. After trade, the market price is higher than the original equilibrium price, resulting in an increase in producer surplus. The new producer surplus is the area between the supply curve and the new market price, which is represented by the area B + C + D.

Question 2

Figure 9-10. The figure applies to Mexico and the good is rifles. -Refer to Figure 9-10. The price and quantity of rifles in Mexico before trade is A)P₀ and Q₀. B)P₁ and Q₁. C)P₂ and Q₂. D)P₁ and Q₀.

Accepted Answer

The answer of Figure 9-10. The figure applies to Mexico...

Question 3

Figure 9-9 
-Refer to Figure 9-9. Consumer surplus in this market after trade is
A)A.
B)A + B.
C)A + B + D.
D)C.

Accepted Answer

The answer of Figure 9-9 
-Refer to Figure 9-9. Consumer...

Question 4

Figure 9-9 
-Refer to Figure 9-9. The change in total surplus in this market because of trade is
A)D, and this area represents a loss of total surplus because of trade.
B)D, and this area represents a gain in total surplus because of trade.
C)B + D, and this area represents a loss of total surplus because of trade.
D)B + D, and this area represents a gain in total surplus because of trade.

Accepted Answer

The answer of Figure 9-9 
-Refer to Figure 9-9. The...

Question 5

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for Welsh producer surplus with trade? A)Producer surplus with trade = (1/2)P₀Q_0. B)Producer surplus with trade = (1/2)P₁Q_1. C)Producer surplus with trade = (1/2)P₁Q_2. D)None of the above is correct.

Accepted Answer

The answer of Figure 9-7. The figure applies to the...

Question 6

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. With trade, Wales A)imports Q₂ - Q₁ units of cheese. B)exports Q₂ - Q₁ units of cheese. C)imports Q₂ - Q₀ units of cheese. D)exports Q₂ - Q₀ units of cheese.

Accepted Answer

With trade, Wales produces at point U1 but exports at the world price of Pw. Therefore, it exports Q₂ - Q₁ units of cheese.

Question 7

Figure 9-9 
-Refer to Figure 9-9. Producer surplus in this market before trade is
A)A.
B)A + B.
C)B + C + D.
D)C.

Accepted Answer

The answer of Figure 9-9 
-Refer to Figure 9-9. Producer...

Question 8

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for the gains from trade? A)Gains from trade = (1/2)(P₁ - P₀)(Q₂ - Q₁). B)Gains from trade = (1/2)(P₁ - P₀)(Q₂ - Q₀) C)Gains from trade = (1/2)(P₁ - P₀)(Q₁ + Q₂). D)Gains from trade = (1/2)(Q₁)(P₃ - P₁).

Accepted Answer

The answer of Figure 9-7. The figure applies to the...

Question 9

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become
A)better off, its producers of fish will become better off, and on balance the citizens of Denmark will become better off.
B)worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off.
C)Worse off, its producers of fish will become better off, and on balance the citizens of Denmark will become worse off.
D)better off, its producers of fish will become worse off, and on balance the citizens of Denmark will become better off.

Accepted Answer

Denmark, being a price-taker in the fish market, has no market power and has to accept the world price of fish which is $6.00 per pound. Before trade, the domestic price of fish in Denmark is $10.00 per pound which is higher than the world price. This indicates that Denmark is not using its resources efficiently to produce fish, and there is an opportunity cost associated with producing fish domestically rather than importing them from the world market.

If Denmark begins to allow trade, it will import fish from the world market where it can obtain them at a lower price of $6.00 per pound. The domestic producers of fish in Denmark will face competition from the world market, which may reduce the quantity of fish produced domestically. As a result, the price of fish in Denmark may fall from $10.00 per pound to something closer to the world price of $6.00 per pound.

Consumers in Denmark will benefit from lower prices, and their welfare will increase. Domestic producers may be worse off due to increased competition, but this depends on the elasticity of supply and demand for fish. If domestic producers are efficient and can compete with the world market, they may still be able to sell their fish at a higher price, but if they are not efficient, they may be pushed out of the market. Overall, on balance, the citizens of Denmark will become better off due to lower prices and increased consumer surplus, and the resources of Denmark will be used more efficiently as it shifts from producing fish domestically to importing them from the world market.

Question 10

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8. The country for which the figure is drawn
A)has a comparative advantage relative to other countries in the production of cars and it will export cars.
B)has a comparative advantage relative to other countries in the production of cars and it will import cars.
C)has a comparative disadvantage relative to other countries in the production of cars and it will export cars.
D)has a comparative disadvantage relative to other countries in the production of cars and it will import cars.

Accepted Answer

The diagram shows a downward sloping demand curve and an upward sloping supply curve, which is indicative of a competitive market. The equilibrium price and quantity are P* and Q*. If the country has a comparative disadvantage in producing cars, its domestic supply curve will be higher than the world price. This means that at the equilibrium price, the quantity supplied domestically (QS) will be less than the quantity demanded domestically (QD). As a result, the country will have to import cars from other countries to meet its domestic demand. Therefore, the correct answer is D.

Question 11

Figure 9-9 
-Refer to Figure 9-9. Total surplus in this market before trade is
A)A + B.
B)A + B + C.
C)A + B + C + D.
D)B + C + D.

Accepted Answer

The answer of Figure 9-9 
-Refer to Figure 9-9. Total...

Question 12

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8. In the country for which the figure is drawn, total surplus with international trade in cars
A)is represented by the area A + B + C.
B)is represented by the area A + B + D.
C)is smaller than producer surplus without international trade in cars.
D)is larger than total surplus without international trade in cars.

Accepted Answer

With international trade, the consumer surplus increases to include the area A and the producer surplus increases to include the area B and D. Therefore, the total surplus with international trade is larger than without international trade. Thus, answer choice D is the correct answer.

Question 13

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for Welsh consumer surplus with trade? A)Consumer surplus with trade = (1/2)(Q₀)(P₁ - P₀). B)Consumer surplus with trade = (1/2)(Q₀)(P₃ - P₀). C)Consumer surplus with trade = (1/2)(Q₁)(P₃ - P₁). D)None of the above is correct.

Accepted Answer

Consumer surplus with trade is calculated as the area above the price and below the demand curve after the introduction of trade. In this case, it is the area Q₁. To calculate the exact value, we need to take half of the base (Q₁) and multiply it by the height (P₃ - P₁). Therefore, the correct equation for Welsh consumer surplus with trade is (1/2)(Q₁)(P₃ - P₁), which is option C.

Question 14

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an
A)importer of fish and the price of fish in Germany will be $6.00.
B)importer of fish and the price of fish in Germany will be $8.00.
C)exporter of fish and the price of fish in Germany will be $6.00.
D)exporter of fish and the price of fish in Germany will be $8.00.

Accepted Answer

Since the world price of fish is lower than the before-trade price in Germany, Germany will become an importer of fish. The price of fish in Germany will adjust to the world price of $6.00 per pound, since Germany is a price-taker and cannot influence the market price.

Question 15

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8. The price corresponding to the horizontal dotted line on the graph represents the price of cars
A)after trade is allowed.
B)before trade is allowed.
C)that maximizes total surplus when trade is allowed.
D)that minimizes the well-being of domestic car producers when trade is allowed.

Accepted Answer

The horizontal dotted line represents the domestic price of cars before trade is allowed.

Question 16

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. The equilibrium price and the equilibrium quantity of cheese in Wales before trade are A)P₁ and Q_2. B)P₁ and Q₁. C)P₀ and Q₀. D)P₀ and Q₁.

Accepted Answer

The answer of Figure 9-7. The figure applies to the...

Question 17

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. With trade, the Welsh price of cheese and the Welsh quantity of cheese demanded are A)P₁ and Q₂. B)P₁ and Q₁. C)P₀ and Q₀. D)P₃ and Q₁.

Accepted Answer

According to Figure 9-7, the world price is P₀. With trade, the Welsh price of cheese will also be P₀. The Welsh quantity of cheese demanded at this price is Q₁. Therefore, the correct choice is B as it indicates P₁ and Q₁.

Question 18

Figure 9-9 
-Refer to Figure 9-9. Consumer surplus in this market before trade is
A)A.
B)A + B.
C)A + B + D.
D)C.

Accepted Answer

The answer of Figure 9-9 
-Refer to Figure 9-9. Consumer...

Question 19

Figure 9-9 
-Refer to Figure 9-9. Total surplus in this market after trade is
A)A + B.
B)A + B + C.
C)A + B + C + D.
D)B + C + D.

Accepted Answer

Total surplus in a market after trade is the sum of consumer surplus (A+B+C) and producer surplus (D+E+F). In this figure, producer surplus is represented by area D, and consumer surplus is represented by areas A, B, and C. Therefore, total surplus is A+B+C+D.

Question 20

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. 
-Refer to Figure 9-8. When the country for which the figure is drawn allows international trade in cars,
A)consumer surplus increases by the area B.
B)producer surplus decreases by the area B + D.
C)total surplus increases by the area D.
D)All of the above are correct.

Accepted Answer

Allowing international trade will result in an increase in the quantity of cars (Q2 > Q1) and a decrease in the price of cars (P2 < P1). This will lead to an increase in total surplus which is represented by the area D. Consumer surplus will increase by the area above the new price (P2) and below the original price (P1) up to the new quantity (Q2), which is represented by the area below the demand curve and above P2. However, producer surplus will decrease by the area below the new price (P2) and above the original price (P1) up to the new quantity (Q2), which is represented by the area above the supply curve and below P2. Therefore, only statement C is correct.

Quiz 9: Application: International Trade

Figure 9-9 -Refer to Figure 9-9. Producer surplus in this market after trade is

Figure 9-10. The figure applies to Mexico and the good is rifles. -Refer to Figure 9-10. The price and quantity of rifles in Mexico before trade is

Figure 9-9 -Refer to Figure 9-9. Consumer surplus in this market after trade is

Figure 9-9 -Refer to Figure 9-9. The change in total surplus in this market because of trade is

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for Welsh producer surplus with trade?

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. With trade, Wales

Figure 9-9 -Refer to Figure 9-9. Producer surplus in this market before trade is

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for the gains from trade?

The before-trade price of fish in Denmark is $10.00 per pound. The world price of fish is $6.00 per pound. Denmark is a price-taker in the fish market. If Denmark begins to allow trade in fish, its consumers of fish will become

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. -Refer to Figure 9-8. The country for which the figure is drawn

Figure 9-9 -Refer to Figure 9-9. Total surplus in this market before trade is

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. -Refer to Figure 9-8. In the country for which the figure is drawn, total surplus with international trade in cars

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. Which of the following is a valid equation for Welsh consumer surplus with trade?

The before-trade price of fish in Germany is $8.00 per pound. The world price of fish is $6.00 per pound. Germany is a price-taker in the fish market. If Germany allows trade in fish, then Germany will become an

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. -Refer to Figure 9-8. The price corresponding to the horizontal dotted line on the graph represents the price of cars

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. The equilibrium price and the equilibrium quantity of cheese in Wales before trade are

Figure 9-7. The figure applies to the nation of Wales and the good is cheese. -Refer to Figure 9-7. With trade, the Welsh price of cheese and the Welsh quantity of cheese demanded are

Figure 9-9 -Refer to Figure 9-9. Consumer surplus in this market before trade is

Figure 9-9 -Refer to Figure 9-9. Total surplus in this market after trade is

Figure 9-8. On the diagram below, Q represents the quantity of cars and P represents the price of cars. -Refer to Figure 9-8. When the country for which the figure is drawn allows international trade in cars,