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Chapter 9/Application: International Trade ❖ 171
Questions for Review
1. If the domestic price that prevails without international trade is above the world price, the
3. Figure 2 illustrates supply and demand for an importing country. Before trade is allowed,
Figure 2
4. A tariff is a tax on goods produced abroad and sold domestically. If a country is an importer
172 ❖ Chapter 9/Application: International Trade
Quick Check Multiple Choice
1. a
Problems and Applications
1. a. Figure 4 illustrates the Canadian market for wine, where the world price of wine is
P
1.
The following table illustrates the results under the heading "
P
1."
b. The shift in the Gulf Stream destroys some of the grape harvest in Europe and raises the
Chapter 9/Application: International Trade ❖ 173
producers to
Q
2S and a decline in the quantity demanded to
Q
2D. This reduces the number of
Before Tariff
After Tariff
CHANGE
174 ❖ Chapter 9/Application: International Trade
areas D + E + F.
P
w1
P
w2
CHANGE
4. a. While there are many possible answers, one correct answer is: the jobs argument and
Chapter 9/Application: International Trade ❖ 175
b. While there are many possible answers, one correct answer is: the national-security
argument and the infant-industry argument. The economic rationale for the national-
5. a. Figure 9 shows the market for T-shirts in Textilia. The domestic price is $20 Once trade is
allowed, the price drops to $16 and three million T-shirts are imported.
176 ❖ Chapter 9/Application: International Trade
6. a. Figure 10 shows the market for grain in an exporting country. The world price is
PW
.
b. An export tax will reduce the effective world price received by the exporting nation.
c. An export tax will increase domestic consumer surplus, decrease domestic producer
surplus, and increase government revenue.
7. a. This statement is true. For a given world price that is lower than the domestic price,
quantity demanded will rise more when demand is elastic. Therefore, the rise in
consumer surplus will be greater when demand is elastic.
Chapter 9/Application: International Trade ❖ 177
8. a. Figure 11 shows the market for jelly beans in Kawmin if trade is not allowed. The market
Figure 11
b. Since the world price is $1, Kawmin will become an importer of jelly beans. Figure 12
Figure 12
c. The tariff raises the world price to $2. This reduces domestic consumption to 6 bags and
178 ❖ Chapter 9/Application: International Trade
D
b. The effects of the consumption tax can be seen in the table below:
10. a. When a technological advance lowers the world price of televisions, the effect on the
United States, an importer of televisions, is shown in Figure 13. Initially the world price
Figure 13
P
1
P
2
CHANGE
Chapter 9/Application: International Trade ❖ 179
c. If the government places a $100 tariff on imported televisions, consumer and producer
11. An export subsidy increases the price of steel exports received by producers by the amount
of the subsidy, s, as shown in Figure 14. The figure shows the world price,
P
W, before the
180 ❖ Chapter 9/Application: International Trade
Thus, it is not a good policy from an economic standpoint because there is a decline in total
surplus.
Without Subsidy
With Subsidy
CHANGE
