Use the equations listed below to answer questions 1-7

| November 19, 2015

Use the equations listed below to answer questions 1-7.  They are, respectively, the demand and supply equations for motor bikes in the U.S. and the Rest of the World (ROW).

 

                  DEMAND               SUPPLY

 U.S. :   P = 8 – 1/10 QD       P = 4 + 1/10 QS     (or,  QD = 80 – 10 P and QS = -40 + 10 P)

 ROW:   P = 8 – 1/10 QD       P = 2 + 1/10 QS     (or,  QD = 80 – 10 P and QS = -20 + 10 P)

What is the autarky or no trade price of motorbikes in the U.S.?

                       

$4.50

 

                       

 $5.00

 

                       

 $5.50

 

                       

 $6.00

 

                       

 $8.00

 

2.5 points  

QUESTION 2

 

What is the domestic production of motorbikes in the U.S. under autarky?

                       

40

                       

25

                       

15

                       

50

                       

20

2.5 points  

QUESTION 3

 

What is the autarky or “no trade” price of motorbikes in the Rest of the World?

 

                       

 $4.50

 

                       

 $5.00

 

                       

 $5.50

 

                       

 $6.00

 

                       

 $8.00

 

2.5 points  

QUESTION 4

 

The U.S. and ROW have decided to open up to free trade.  Using a little algebra, I find that the common equilibrium trading price is $5.50.  At this free trade price, a quantity of  ______ motorbikes are ______ by the United States.

 

                       

 10; exported

 

                       

 10; imported

 

                       

 40; exported

 

                       

 40; imported

 

                       

 30; imported

 

2.5 points  

QUESTION 5

 

At the free trade price of $5.50, the United States produces a quantity of  _____ motorbikes.

 

                       

10

 

                       

15

 

                       

25

 

                       

30

 

                       

40

 

2.5 points  

QUESTION 6

 

Calculate the Gains from Trade for the Rest of the World due to the move to free trade in motorbikes.  Recall:  the international trading price is $5.50.

 

                       

 $2.50

 

                       

 $4.00

 

                       

 $5.50

 

                       

 $5.00

 

                       

 $7.00

 

2.5 points  

QUESTION 7

 

Use the following information to answer questions 9 – 12.  The demand curve for coffee in the United States can be represented by QD = 350 – .5 P or P = 700 – 2 QD.   The supply curve for coffee (produced in Hawaii) is QS = -200 + 5P or P = 40 + .2 QS.  What are the autarky price and quantity of coffee in the United States?

 

                       

P = $700 and Q = 40

 

                       

P = $200 and Q = 350

 

                       

P = $100 and Q= 300.

 

                       

P = $300 and Q = 100

 

                       

P = $350 and Q = 200

 

2.5 points  

QUESTION 8

 

Suppose the international price of coffee is $120.   If the U.S. engaged in free trade, U.S. coffee production and consumption would equal, respectively, _____ and _____.  As a result, the U.S. would be an _____ of coffee. 

 

                       

400; 290; importer.

 

                       

400; 290; exporter.

 

                       

290; 400; importer.

 

                       

290; 400; exporter.

 

                       

Insufficient information to answer the question.

 

2.5 points  

QUESTION 9

 

The move from autarky to free trade in coffee has what impact on U.S. consumers? 

 

                       

U.S. consumers are indifferent since they are trying to cut back on caffeine.

 

                       

U.S. consumers gain $5,800 in consumer surplus.

 

                       

U.S. consumers gain $6,000 in producer surplus.

 

                       

U.S. consumers lose $5,900 in consumer surplus.

 

                       

U.S. consumers lose $7,000 in producer surplus.

 

2.5 points  

QUESTION 10

 

The move from autarky to free trade in coffee has what impact on U.S. producers of coffee? 

 

                       

U.S. producers gain $1,100 in producer surplus.

 

                       

U.S. producers gain $5,800 in consumer surplus.

 

                       

U.S. producers gain $7,000 in producer surplus.

 

                       

U.S. producers lose $5,900 in consumer surplus.

 

                       

U.S. producers lose $6,000 in producer surplus.

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