Econ Questions - Essay Example

Download file to see previous pages... Pugelovia will export rice and import cloth.
9.b. An increase in endowment of capital would result in a production-possibility curve that is biased toward machinery or production of large volume of machinery. The large volume of machinery produced is due to the effect of more clothing being given up in order to produce machineries.
9.e. US national well being may decline as a result of the increase in endowment of capital. As the capital/labour ratio in the international sector declines, the wages in the US would decrease causing a declining income for workers.
3. A tariff would increase the production output domestically. When a country imposes tariff, the domestic price of the product would increase in order to include the tariff. Local producers who do not pay the import tariff would have an incentive to increase their output in order to exploit the higher domestic price. The tariff would give domestic producers extra surplus on all the goods they would have produced even without the tariff plus smaller net gains on additional sales. Graphically, the domestic supply would increase from point J to point C, when tariff is imposed. The production effect is the area ABCJ. The production effect is computed by { = [q1*t] + [(q2 – q1)*t/2]]
4. A tariff would decrease the consumption domestically. When a country imposes tariff, the domestic price would increase such that consumer demand will decline due to higher price. The tariff costs consumers both the full tariff on every goods they continue to buy and the net enjoyment on goods they would have bought at the lower tariff-free price but do not buy at the higher price that includes the tariff. Graphically, the domestic demand would decrease along the demand curve from point H to point F, when tariff is imposed. The consumption effect is the area ABFH. The consumption effect is computed by { = [q3*t] + (q4 – q3)*t/2]
5. Imposing a tariff high ...Download file to see next pagesRead More