Imagine that the US and Canada do not trade with each other. Both countries have a downward sloping average cost curve for producing golf balls, but the US average cost curve is lower than the Canadian average cost curves for all values of Q (# of golf balls produced within the country).
a) Draw a graph for each country. Name some reasons that the US might have a lower average cost curve than Canada. b) Imagine that trade opens between these two countries for golf balls. Explain what you expect to happen and why.
c) On your graphs in part (a) demonstrate the effect of opening trade. Label the new world demand curve at Dworld.
d) For the following parties, say why you think each one would be better or worse off because of trade. Note that the overall effect is unclear for two of the parties, but trade clearly affects the other two: consumers in the US, producers in the US, consumers in Canada and producers in Canada.
Imagine that the US and Canada do not trade with each other. Both countries have a downward sloping average cost curve for producing golf balls, but the US average cost curve is lower than the Canadian average cost curves for all values of Q (# of golf balls produced within the country).
a) Draw a graph for each country. Name some reasons that the US might have a lower average cost curve than Canada. b) Imagine that trade opens between these two countries for golf balls. Explain what you expect to happen and why.
c) On your graphs in part (a) demonstrate the effect of opening trade. Label the new world demand curve at Dworld.
d) For the following parties, say why you think each one would be better or worse off because of trade. Note that the overall effect is unclear for two of the parties, but trade clearly affects the other two: consumers in the US, producers in the US, consumers in Canada and producers in Canada.
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4) Assume the following table shows the yields per acre of wine grapes and olive oil in two different countries. Country A and country Z. (Also assume that in each country the labor and other processing costs per acre are the same regardless of whether grape vines or olive trees are cultivated).
|
Country A |
Country Z |
|
|
Olive Oil yield |
75 barrels |
40 barrels |
|
Grape yield |
90 barrels |
60 barrels |
Suppose initially each country had erected high tariff barriers to keep out foreign wine and/or olive oil and was producing for its own needs only.
Could consumers in both countries benefit if all trade barriers were dropped? If not, explain why not. If consumers could benefit, explain how and identify: a) which country has the greater opportunity cost of producing olive oil; b)the country which would end up exporting wine and which would export olive oil after the elimination of trade barriers. 6 pts
