**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?

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

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

**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?

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

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

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?

**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?

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

c. How many millions will be imported?

d. How many millions will domestic producers make?

e. How many millions will Canadian consumers buy?

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

g. How many millions will be imported?

h. How many millions will domestic producers make?

i. How many millions will Canadian consumers buy?

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

**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?

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

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

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

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

**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?

b. How many millions will be imported?

c. How many millions will domestic producers make?

d.. How many millions will Canadian consumers buy?

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

**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.**