a. Use consumer and producer surplus measures to illustrate who gains and who loses when markets are opened up to world trade.
b. Based on your illustrations, make a case for free trade. How can the losers be persuaded to agree to a free trade?
An examination of New Zealand’s trade data would indicate that more than half of the nation’s export revenue is derived from selling agri -food products while import of motor vehicles and machinery accounts for a large proportion of national import expenditure.
a. How would trade theory explain such trade composition?
b. Why would New Zealand not specialise completely in agri-food products (i.e. not produce only agrifood products and none of any other products).
a. NZ imports all of its requirements of bananas. Currently, there is no tariff on banana. Is this a good policy? What impacts you expect would happen if NZ imposes a sizeable tariff on banana imports? Illustrate your answer.
b. NZ exports almost 90% of its dairy output and accounts for 1/3 of global dairy trade. Currently, NZ does not impose any tax or subsidy on dairy exports. What impacts you expect would happen if NZ imposes a sizeable tax on its dairy exports? Would you recommend such an export tax policy? Illustrate your answer.
A small importer faces following demand and supply functions in its domestic and world markets for beef:
Qd = 300 - 8p ( 1)
Qs = 2p - 20 (2)
X = 18p - 100 (3)
Qd = quantity demanded (in tons)
Qs = quantity supplied (in tons)
p = price per ton in thousand dollars
X = exports ((in tons)) from rest of the world
a. Derive import demand function for beef and calculate domestic price and the volume of beef imports under free trade.
b. If the importer country imposes an import quota at 100 tons, calculate what happens to (i) world price, (ii) domestic price, (iii) domestic output, (iv) consumption and (v) volume of imports.
c. Quantify the welfare effects of a quota policy. Specifically, calculate the effect of this quota on consumer surplus, producer surplus government surplus and national welfare. [national welfare = consumer surplus+ producer surplus + government surplus]
d. Illustrate your answers graphically.