Chapter No 9

Question No 4

a) The Jobs argument can be used here. I can argue that free trade will lead to fall in prices and that can lead
to reduction in production. This phenomena will lead to workers losing jobs and that will hamper our
timbre industry.
The unfair competition argument can also be used here. I can argue that the competitors from other
countries have different playing field and they play by different rules. So our industry should be protected
from the foreign competition.

b) The arguments that make the most economic sense to me are:

a) The jobs argument.
This argument makes sense to me because trade has the potential to lead to job losses in a specific
industry if not in general. Imports can lead to less domestic production and can lead to shrinking
domestic market and employment.
b) The unfair competition argument.
This argument is in light of the unfair practices adopted by governments to capture the domestic
market of other countries. They many times subsidize goods produced in their country and reduce
world prices leading to dropping prices of the good world wide.
Example of this is China's intervention in the market for solar panels.

Question No 7

a) TRUE.
Total surplus increase more when demand is more elastic and hence greater gains are realized from trade.
b) FALSE
Total surplus increases even when the demand curve is perfectly inelastic.
c) FALSE
Consumers do benefit from trade even when the demand is perfectly inelastic as consumer surplus
increases.

Question No 5
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4
B, Consumer surplus increases by 14, producer surplus decreases by 8 and total surplus
increases by 6 unit.

Question No 8
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