Econ 325 Homework 3 Assignment
Econ 325
Homework 3
Total= 100 points
QUESTION 1 ( 60 Points )
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
where P 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.
2
Section 2: (40 Points)
Multiple Choice Questions
1) ________ are quotas that lead to complete elimination of trade.
a) Embargoes
b) Voluntary export restraints
c) Non-tariff barriers
d) Orderly marketing agreements
Answer question 2-6 based on the following diagram:
2) The quotas shown in the diagram equals:
a) 200 units
b) 500 units
c) 1,000 units
d) 1,200 units
3)The quota restricts trade by the same amount as a tariff of:
a) $20
b) $30
c) $50
d) cannot answer without more information
4)Quota rents equal:
a) $2,000
b) $5,000
c) $6,000
d) $10,000
5) If the government was to auction quota licenses competitively, it could earn up to:
a) $2,000
b) $5,000
c) $6,000
d) 10,000
D
Quantity
500 1000 1200 1500
$50
Pfree trade=$20
S
quota
P
3
6)The quota generates deadweight costs of:
a) $10,000
b) $12,000
c) $30,000
d) $50,000
7)_________ countries tend to depend on tariffs for a relatively large part of their
government revenue.
a) Developed
b) Developing
c) All
8) _________ is defined in the US law as selling a product in a foreign country at a
price that is less than fair value.
a) Subsidizing
b) Countervailing
c) Exporting
d) Dumping
9) Resolution of dumping cases in the US involve investigations by:
a) the Justice Department and the International Trade Commission
b) the Justice and Commerce Departments
c) the Justice Department only
d) the Commerce Department and the International Trade Commission
10) _______ are a form of regional integration where member countries lower
internal trade barriers but maintain existing barriers against nonmembers.
a) Custom Unions
b) Free trade areas
c) Reciprocal trade agreements
d) None of the above
11) _________ are a form of regional integration where member countries lower
internal trade barriers but establish a common barrier against nonmembers.
a) Custom Unions
b) Free trade areas
c) Reciprocal trade agreements
d) None of the above
4
Answer 12-15 based upon the following diagram which depicts country A’s market
for its importable.
12) In free trade A will import
a) 700 units from country C
b) 700 units from C and 600 units from B
c) 600 units from C
d) 600 units from C and 400 units from B
13) If A imposes a per unit tariff of $10 on imports from B and C, it will import:
a) 400 units from B
b) 200 units from C
c) 200 units from each
d) 400 units from B and 200 units from C
14) If A forms a custom union with B, it will import:
a) 400 units from B
b) 200 units from C
c) 200 units from each
d) 400 units from B and 200 units from C
15) If A forms a custom union with C, the value of trade diversion will be:
a) $0
b) $10,000
c) $20,000
d) $40,000
P
25
20
15
10
Pc+tariff
PB
Pc
Q
100 200 300 500 600 700
