# 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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