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4 marksInternational Trade

CAPE Economics Unit 2 · 2006 · Paper 2 · Question 5(a)(iii)

Assume that the world price for shirts is $3.

Show the world price of $3 as P_w on the diagram you have drawn.

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Other parts of this question

  1. 5(a)(i)Using graph paper, plot the domestic demand and supply curves for shirts.[6 marks]
  2. 5(a)(ii)Identify the equilibrium price (PE) and equilibrium quantity (QE).[3 marks]
  3. 5(a)(iv)On your diagram, indicate the levels of domestic consumption and domestic production at the world price.[4 marks]
  4. 5(b)(i)Show the tariff price as P_t on the diagram you have drawn.[3 marks]
  5. 5(b)(ii)Following the imposition of the tariff, by how much will domestic production increase?[2 marks]
  6. 5(b)(iii)What is the new level of domestic consumption following the tariff?[2 marks]
  7. 5(b)(iv)Following the imposition of the tariff, how many shirts will be imported?[3 marks]
  8. 5(b)(v)In terms of tax revenues, how much will the tariff yield?[3 marks]
  9. 5(c)(i)On your diagram, shade in the area representing the net welfare loss (deadweight loss) caused by the tariff.[5 marks]
  10. 5(c)(ii)Calculate the total loss in welfare (deadweight loss).[5 marks]
  11. 5(d)(i)Explain who gains and who loses when a country allows trade and becomes an exporter.[4 marks]
  12. 5(d)(ii)Explain who gains and who loses when a country allows trade and becomes an importer.[4 marks]
  13. 5(d)(iii)Considering the circumstances in (d)(i) and (d)(ii), do the gains from trade exceed the losses?[2 marks]

More practice: the rest of this paper · more International Trade questions · all CAPE Economics Unit 2 past papers