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Given that the world supply curve is horizontal at the world price for a given good, can a subsidy on imports raise welfare in the importing country? Explain your answer.
Show that if the importing country faces an upward sloping foreign supply curve (excess supply curve), a tariff may raise welfare in the importing country.
Based on the estimates of the U.S. daily oil demand function in Equation 9.3 and supply function in Equation 9.4, use calculus to determine the change in deadweight loss from a marginal increase in a tariff. evaluated where the tariff is initially zero. (Hint: You are being asked to determine how an area similar to that of C + E in Figure 9.8 changes when a small tariff is initially applied.
Free trade is the unrestricted purchase and sale of goods and services between countries, as exemplified in the European Economic Area, the North American Free Trade Agreement, and bilateral agreements between various countries. Suppose that the competitive equilibrium price for a good supplied domestically, pd is above the world price for the same good, pw, and that a ban is presently in effect that prevents imports of the good from entering the country. The domestic government is considering eliminating the ban. If it does so, how will domestic production and consumption change? Who will win and lose?
Since 1960, the manufacture, sale, consumption, and storage of alcohol has been illegal in the state of Gujarat, India. Similar bans are in place in some other Indian states as well. Assuming a ban on alcohol is partially effective, draw a diagram to show how it would affect the price of alcohol. Who wins and who loses from such a ban? Consider the effects of the ban on consumers, producers, and society overall.
What are the welfare effects of a binding minimum wage? Use a graphical approach to show what happens if all workers are identical. Then describe in writing what is likely to happen to workers who differ by experience, education. age, gender, and race.
What does the domestic price that prevails without international trade tell us about a nation’s comparative advantage?
Explain how and why business activity fluctuates and the role of the government in stabilizing the economy in times of a recession or a slowdown
(8 points) Consider a Bertrand duopoly. Both firms produce an identical good at the same constant marginal cost of $0.80. Demand is given by 𝑄𝑄=100−𝑃. If the two firms charge the same price, they share market demand equally.
The firms are located in Singapore, where the smallest currency denomination is $0.05. The firms thus can only choose prices in increments of $0.05.
a) (1 point) Suppose that both firms choose the same price, 𝑝. What is the profit of a firm as a function of 𝑝?
b) (2 points) Now suppose that one firm unilaterally deviates from the arrangement in (a) by charging a price $0.05 lower than 𝑝𝑝. What is that firm’s profit as a function of 𝑝?
c) (5 points) A Nash equilibrium occurs when no firm has an incentive to deviate by lowering its price. Using your answers in (a) and (b), set up an inequality that characterizes the Nash equilibrium. Then solve for the Nash equilibria in this game. (Hint: there are three equilibria)
a. Assume capital is K = 6, how much labor will be required to produce 60 cans of tuna? How much labor will be required to produce 100 cans of tuna?
b. Now, assume capital is K = 8, how much labor will be required to produce 60 cans of tuna? How much labor will be required to produce 100 cans of tuna?
c. Graph the isoquants for Q = 60 and Q = 100. What is the MRTS along the isoquants?
