ECON 1050 Lecture Notes - Lecture 7: Outsourcing, Bovine Spongiform Encephalopathy, Trade War

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20 Dec 2016

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Figure 7. 5 (a) shows the situation with free international trade. Canada produces 2 million t- shirts per year and imports 4 million a year at the world price of a shirt. Figure 7. 5 (b) shows what happens when the canadian government imposes a tariff of per t-shirt: the following changes occur in the market for t-shirts in canada. To buy a t-shirt, canadians must pay the world price plus the tariff, so the price of a t-shirt rises by the tariff to . Figure 7. 5 (b) shows the new domestic price line. The price rises by the full amount of the tariff. The buyer paus the entire tariff because supply for the rest of the world is perfectly elastic. Decrease in purchases the higher price of a t-shirt brings a decrease in the quantity demanded along the demand curve. Figure 7. 5 (b) shows the decrease from 6 million shirts a year at.

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Refer to the figure below to answer the following questions. Price Idollars per shirt 57616 700 0 8 16 24 32 40 48 56 64 Quantity Imillions of shirts per year) The figure shows the market for shirts in Canada, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt Canada imposes a tariff on imported shirts of S4 per shirt. Figure 5 Canada's imports of shirts by million shirts per 26) Refer to Figure 5. the tariff year A) increases: 8 decreases: 16 C) increases: 4 D) decreases: 8 E) increases: 16

Refer to the figure below to answer the following questions, Price dollars per shirt) 0 8 16 24 32 40 48 56 64 Quantity (millions of shirts per year) The figure shows the market for shirts in Canada, where D is the domestic demand curve and S is the domestic supply curve. The world price is $20 per shirt. Figure 4 million shirts per year are produced in Canada. 23) In Figure 4, with international trade A) 56 B) 20 C) 32 D) 48 (ED16

1. Importing goods produced by low-wage workers abroad decreasesthe demand for low-skilled U.S. labor that makes competing goods.Supply and demand analysis shows that the equilibrium wage rate oflow-skilled workers making these competing goods and services willfall and experience bears this out. However, dire warnings thatsweatshop labor conditions will be imported along with the foreigngoods are unfounded. Suppose an employer in the United States facescompetition from a foreign producer who pays the equivalent of $1 aday. Explain why, even if there were no minimum wage laws, thisemployer could not succeed by lowering the wage rates of his or herU.S. workers to $1 a day.

2. American Apparel is the largest T-shirt manufacturer in theUnited States. All of its manufacturing is done in a single factorywhich employs 4,000 workers in central Los Angeles. The owner ofthis firm, Dov Charney, has been praised for treating his workerswell:

âPay is performance-related, and amounts to $12 an hour on average,far above California's minimum wage of $6.75. American Apparelstaff can buy subsidized health insurance for $8 a week. They areentitled to free English lessons, subsidized meals and freeparking.â (âThe Hustler,â The Economist, January 4, 2007.)

The article goes on to delineate the high cost of these non-wagebenefits. But Mr. Charney claims not to be an altruist. He issimply trying to maximize profit. Why might Mr. Charenyâs profit behigher by paying all the added benefits to his workers?

3. Answer the following questions:

a. If trade with other countries is prohibited, the Eragoans areconsuming _____ shirts at a price of ______ per shirt.
b. With free trade, for a world price of $4 per shirt, the Eragoansare producing ________ shirts.
c. With free trade, for a world price of $4 per shirt, the Eragoansare consuming ________ shirts.
d. With free trade, for a world price of $4 per shirt, the Eragoansare importing _________ shirts.
e. If the world price is $4 per shirt, and the government of Eragosimposes a tariff of $1, the Eragoans are producing ____________ andimporting _____________shirts.
f. If the world price is $4 per shirt, and the government of Eragosimposes a tariff of $1, how much tariff revenue will the Eragosgovernment collect? ______

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ECON 1050 Lecture Notes - Lecture 7: Outsourcing, Bovine Spongiform Encephalopathy, Trade War

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