International Economics Study Set 9

Business

Quiz 1 :
The Basic Theory Using Demand and Supply

Quiz 1 :
The Basic Theory Using Demand and Supply

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What is producer surplus Using real-world data, what information would you need to measure producer surplus for a product
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Producer surplus is the net gain to producers from being able to sell a product through a market. It is the difference between the lowest price at which some producer is willing to supply each unit of the product and the actual market price that is paid, summed over all units that are produced and sold. The lowest price at which someone is willing to supply the unit just covers the extra (marginal) cost of producing that unit. To measure producer surplus for a product using real world data, three major pieces of information are needed. First, the market price. Second, the quantity supplied. Third, some information about the slope (or shape) of the supply curve. How would quantity supplied change if the market price decreased Or, what are the extra costs of producing each unit up to the actual quantity supplied Producer surplus could then be measured as the area below the market price line and above the supply curve.

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How can a country's supply and demand curves for a product be used to determine the country's demand-for-imports curve What does the demand-for-imports curve mean
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The country's demand for imports is the amount by which the country's domestic quantity demanded exceeds the country's domestic quantity supplied. The demand-for-imports curve is derived by finding the difference between domestic quantity demanded and domestic quantity supplied, for each possible market price for which quantity demanded exceeds quantity supplied. The demand-for-imports curve shows the quantity that the country would want to import for each possible international market price.

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The United States exports a substantial amount of scrap iron and steel to Japan and other countries. Why do some U.S. users of scrap iron and steel support a prohibition on these exports
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The scrap iron and steel are exported by U.S. to japan and other countries. Some U.S users support a ban on the export of steel and iron.
The reasons for the same are given below:
1. The demand for steel and iron from other countries buyers will lead to increase in total demand for iron and steel. The higher demand of iron and steel from other countries lead to rise in the price of scrap iron and steel which will negatively affect the U.S consumers as they need to pay higher prices for iron and steel.
2. Firm using iron and steel as raw material in U.S economy will have to face higher raw material cost. The higher cost of raw material will lead to increase in the price of the end product and consumer of end product need to pay higher prices.

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IN2007, the United States imported about 3.7 billion barrels of oil. Perhaps it would be better for the United States if it could end the billions of dollars of payments to foreigners by not importing this oil. After all, the United States can produce its own oil (or other energy products that substitute for oil). If the United States stopped all oil imports suddenly, it would be very disruptive. But perhaps the United States could gain if it gradually restricted and then ended oil imports in an orderly transition. If we allow time for adjustments by U.S. consumers and producers of oil, and we perhaps are optimistic about how much adjustment is possible, then the following two equa­tions show domestic demand and supply conditions in the United States: Demand: P = 291 40· Q D Supply: P = 0.5 + 35· Q S where quantity Q is in billions of barrels per year and price P is in dollars per barrel. a. With free trade and an international price of $67 per barrel, how much oil does the United States produce domestically How much does it consume Show the demand and supply curves on a graph and label these points. Indicate on the graph the quantity of U.S. imports of oil. b. If the United States stopped all imports of oil (in a way that allowed enough time for orderly adjustments as shown by the equations), how much oil would be produced in the United States How much would be consumed What would be the price of oil in the United States with no oil imports Show all of this on your graph. c. If the United States stopped all oil imports, which group(s) in the United States would gain Which group(s) would lose As appropriate, refer to your graph in your answer.
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Consider again Figure 2.3, which shows free trade in motorbikes. Assume that U.S. productivity in producing motorcycles increases. What is the effect on the U.S. domes­tic demand and/or supply curve(s) What is the effect on the U.S. demand-for-imports curve What is the effect on the equilibrium international price
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Country I has the usual demand and supply curves for Murky Way candy bars. Country II has a typical demand curve too, but it cannot produce Murky Way candy bars. a. Use supply and demand curves for the domestic markets and for the international market. Show in a set of graphs the free-trade equilibrium for Murky Way candy bars. Indicate the equilibrium world price. How does this world price compare to the no-trade price in Country I Indicate how many Murky Ways are traded during each time period with free international trade. b. Show graphically and explain the effects of the shift from no trade to free trade on surpluses in each country. Indicate the net national gain or loss from free trade for each country.
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