6. (a) What was the price difference between U.S. and Chinese solar panels in 2013?
(b) How much money did U.S. consumers save as a result of this price difference if they
purchased 2,000 megawatts of Chinese paneling in 2013?
(c) By how much did the price of Chinese solar panels rise in 2014 as a result of the new
tariff?
(LO 21-02)
Answer:
Feedback:
(a) According to the article, American solar panels cost 83 cents per watt and Chinese solar
7. Suppose the two islands in Problem 4 agree that the terms of trade will be one for one and
exchange 10 pearls for 10 pineapples.
(a) If Alpha produced 6 pearls and 15 pineapples while Beta produced 30 pearls and
8 pineapples before they decided to trade, how many pearls would each be producing
after trade? Assume that the two countries specialize according to their comparative
advantage.
Alpha: __________
Beta: __________
(b) How much would the combined production of pineapples increase for the two islands due
to specialization?
(c) How much would the combined production of pearls increase?
(LO 21-02)
Answers:
Feedback:
(a) According to the information provided in the original table as well as the accompanying
1
© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
(b) Alpha pineapple production was originally 15 while Beta pineapple production was 8, for
(c) Alpha pearl production was originally 6 while Beta pearl production was 30, for a total
8. Suppose the following table reflects the domestic supply and demand for compact discs
(CDs):
(a) Graph these market conditions and identify
(i) The equilibrium price.
(ii) The equilibrium quantity.
(b) Now suppose that foreigners enter the market, offering to sell an unlimited supply of CDs
for $6 apiece. Illustrate and identify
(i) The new market price.
(ii) Domestic consumption.
(iii) Domestic production.
(c) If a tariff of $2 per CD is imposed, what will be
(i) The market price?
(ii) Domestic consumption?
(iii) Domestic production? Graph your answers.
(LO 21-03)
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
Answers:
(a) (i) $14.
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Domestic Supply
Demand
Foreign Supply w/ Tarif
Quantit y (Number of CDs)
Price (dollars per CD)
Feedback:
(a)(i) Equilibrium is where quantity supplied is equal to quantity demanded; in this graph
equilibrium occurs at point A. In this case the equilibrium price is $14.
(ii) Equilibrium is where quantity supplied is equal to quantity demanded. In this case the
equilibrium point is at a quantity of 6 CDs.
(b)(i) Because the foreign supply is unlimited at a price of $6, this becomes the new market
(c)(i) If a tariff of $2 is imposed on the unlimited foreign supply at a price of $6, this would
increase the market price by $2 to $8. Please see the accompanying graph.
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© 2016 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any
manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
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