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Answer To Homework 06

The document discusses comparative and absolute advantages in coffee production between Brazil and Peru, highlighting that Peru has a comparative advantage due to lower opportunity costs. It also covers market equilibrium prices and surpluses in the jelly bean market, showing the effects of tariffs on consumer and producer surplus. The overall impact of trade on total surplus is analyzed, indicating an increase from $16 to $25 with a deadweight loss of $1 due to the tariff.

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36 views2 pages

Answer To Homework 06

The document discusses comparative and absolute advantages in coffee production between Brazil and Peru, highlighting that Peru has a comparative advantage due to lower opportunity costs. It also covers market equilibrium prices and surpluses in the jelly bean market, showing the effects of tariffs on consumer and producer surplus. The overall impact of trade on total surplus is analyzed, indicating an increase from $16 to $25 with a deadweight loss of $1 due to the tariff.

Uploaded by

manadriller00
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

Chapter 6

1. (1) An average worker in Brazil has an absolute advantage in the production of coffee
because he requires less time than an average worker in Peru.
(2) An average worker in Peru has a comparative advantage in the production of coffee.
The opportunity cost of each ounce of coffee for the average worker in Peru (1.5 ounces of
soybeans) is lower than the opportunity cost of each ounce of coffee for the average worker
in Brazil (3 ounces of soybeans).
(3) Brazil will import coffee from Peru because Peru has a comparative advantage in the
production of coffee.
(4) The price of 2 ounces of soybeans for every ounce of coffee falls between the two
opportunity costs.

2. (1) The market equilibrium price is $4 and the equilibrium quantity is 4. Consumer surplus
is $8, producer surplus is $8, and total surplus is $16.

(2) Since the world price is $1, kawmin will become an importer of jelly beans. The domestic
quantity supplied will be 1, quantity demanded will be 7, and 6 bags will be imported.
Consumer surplus is $24.50, producer surplus is $0.50, so total surplus is $25.
(3) The tariff raises the world price to $2. This reduces domestic consumption to 6 bags and
raises domestic production to 2 bags. Imports fall to 4 bags. Consumer surplus is now $18,
producer surplus is $2, government revenue is $4, and total surplus is $24.
(4) When trade was opened, total surplus increases from $16 to $25. The deadweight loss of
the tariff is $1 ($25 − $24).

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