Practice Trade Problems

This is intended to help you get additional practice beyond what we will do in class.  I have made this as similar to exam problems as possible, but it can't be quite the same because the exam will ask you to write out answers, draw lines, and so forth.  The two "identifying" problems below are included to give you added practice interpreting the areas on the graphs.

Problems are interactive -- click answers to see if they are right.
 

1. Ricardian model problem 

Albania has available 300 days of labor.  It can make two pounds of meat with one day of labor, and one pound of potatoes with one day of labor.  It does not trade.

a. If Albania wants 100 pounds of potatoes, what is the most meat it can have?

none

100

200

300

400

500

600

700

800

b. If Albania wants 200 pounds of potatoes, what is the most meat it can have?

none

100

200

300

400

500

600

700

800

c. If all its workers are employed, how many pounds of meat must it give up to get another pound of potatoes?

1/3

1/2

1

2

3

4

5

d.  Now Albania opens to trade with the outside world, and finds that it can trade one pound of meat for one pound of potatoes.
If Albania wants 200 pounds of potatoes, what is the most meat it can have?

none

100

200

300

400

500

600

700

800

e. If Albania wants 300 pounds of potatoes, what is the most meat it can have?

none

100

200

300

400

500

600

700

800

f. In general, how much meat must it give up to get another pound of potatoes?

1/3

1/2

1

2

3

4

5

g. Draw the PPF and the line representing post-trade consumption possibilities.
click here to see the answer

h. Does it matter whether Albania is more or less efficient (in work per unit of output) at making potatoes than the rest of the world?

yes

no

2. Small-country tariff problem

This graph represents the bicycle market in Canada.


a. If there are no imports, what will the price of bicycles be?

$20

$40

$60

$80

$100

$120

$140

$160

$200

b.  Now suppose that foreign bicycles can be purchased for $120 each, and there is free trade.   What will the price of bicycles be?

$20

$40

$60

$80

$100

$120

$140

$160

$200

c. How many millions will be imported?

1

2

3

4

5

6

7

8

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12

d. How many millions will domestic producers make?

1

2

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5

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9

10

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12

e. How many millions will Canadian consumers buy?

1

2

3

4

5

6

7

8

9

10

11

12

f. Now, suppose further that the Candian government imposes a tariff or $20 on every imported bicycle.   What will the price of bicycles be?

$20

$40

$60

$80

$100

$120

$140

$160

$200

g. How many millions will be imported?

1

2

3

4

5

6

7

8

9

10

11

12

h. How many millions will domestic producers make?

1

2

3

4

5

6

7

8

9

10

11

12

i. How many millions will Canadian consumers buy?

1

2

3

4

5

6

7

8

9

10

11

12

j. Has there been a net national gain or loss from imposing this tariff?

gain

loss

neither gain nor loss

can't tell

Click here for a colored-in version of the graph above showing consumer surplus and so forth.

Click here for an annotated description of how to solve this problem.
 

3. Identifying consumer and producer surplus in the small-country case

Here is a diagram depicting the effects of a tariff in a small-country case.

a. Which regions, together, show consumer surplus before the application of the tariff?

1 only

1 + 2

1 + 4

1 + 4 + 5

1 + 4 + 6

1 + 4 + 5 + 6 + 7

1 + 4 + 5 + 6 + 7 + 8

1 + 5 + 6 + 7 + 8 + 9

4 + 6

4 + 5 + 6 + 7

5 only

5 + 10

6 only

6 + 7 + 8

6 + 7 + 8 + 9

7 only

8 only

10 only

b. Which regions, together, show consumer surplus after the application of the tariff?

1 only

1 + 2

1 + 4

1 + 4 + 5

1 + 4 + 6

1 + 4 + 5 + 6 + 7

1 + 4 + 5 + 6 + 7 + 8

1 + 5 + 6 + 7 + 8 + 9

4 + 6

4 + 5 + 6 + 7

5 only

5 + 10

6 only

6 + 7 + 8

6 + 7 + 8 + 9

7 only

8 only

10 only

c. Which regions, together, show producer surplus before the application of the tariff?

1 only

1 + 2

1 + 4

1 + 4 + 5

1 + 4 + 6

1 + 4 + 5 + 6 + 7

1 + 4 + 5 + 6 + 7 + 8

1 + 5 + 6 + 7 + 8 + 9

4 + 6

4 + 5 + 6 + 7

5 only

5 + 10

6 only

6 + 7 + 8

6 + 7 + 8 + 9

7 only

8 only

10 only

d. Which regions, together, show producer surplus after the application of the tariff?

1 only

1 + 2

1 + 4

1 + 4 + 5

1 + 4 + 6

1 + 4 + 5 + 6 + 7

1 + 4 + 5 + 6 + 7 + 8

1 + 5 + 6 + 7 + 8 + 9

4 + 6

4 + 5 + 6 + 7

5 only

5 + 10

6 only

6 + 7 + 8

6 + 7 + 8 + 9

7 only

8 only

10 only

e. Which regions, together, show the government's gain from the tariff?
 

1 only

1 + 2

1 + 4

1 + 4 + 5

1 + 4 + 6

1 + 4 + 5 + 6 + 7

1 + 4 + 5 + 6 + 7 + 8

1 + 5 + 6 + 7 + 8 + 9

4 + 6

4 + 5 + 6 + 7

5 only

5 + 10

6 only

6 + 7 + 8

6 + 7 + 8 + 9

7 only

8 only

10 only

6. Small-country quota problem

This graph represents the bicycle market in Canada.


 

a.  Foreign bicycles can be purchased for $120 each, as in the last problem.  Now, Canada imposes a quota of 3 million imported bicycles per year.  After any adjustment, what will the price of bicycles be?

$20

$40

$60

$80

$100

$120

$140

$160

$200

b. How many millions will be imported?

1

2

3

4

5

6

7

8

9

10

11

12

c. How many millions will domestic producers make?

1

2

3

4

5

6

7

8

9

10

11

12

d.. How many millions will Canadian consumers buy?

1

2

3

4

5

6

7

8

9

10

11

12

e.. Has there been a net national gain or loss from imposing this quota?

gain

loss

neither gain nor loss

can't tell

Click here for a colored-in version of the graph above showing consumer surplus and so forth.

Click here for an annotated description of how to solve this problem.