Question

Suppose the domestic price (no-international-trade price) of corn is $2.00 a kilogram in the United States while the world price is $2.50 a kilogram. Assuming no transportation costs and that the United States signs an agreement under the World Trade Organization to reduce the trade barriers of corn, then the United States will: have a domestic shortage of corn. export corn. import corn. neither export nor import corn.

          Suppose the domestic price (no-international-trade price) of corn is $2.00 a kilogram in the United States while the world price is $2.50 a kilogram.
Assuming no transportation costs and that the United States signs an agreement under the World Trade Organization to reduce the trade barriers of corn, then the United States will:
have a domestic shortage of corn.
export corn.
import corn.
neither export nor import corn.

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Added by Michael J.

Principles of Economics

Gregory Mankiw 8th Edition

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Solved by Expert Andrew Davis

08/17/2023

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Step 1: If the domestic price of corn in the United States is lower than the world price, it indicates that the United States has a comparative advantage in producing corn. Show more…

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Suppose the domestic price (no-international-trade price) of corn is $2.00 a kilogram in the United States while the world price is $2.50 a kilogram. Assuming no transportation costs and that the United States signs an agreement under the World Trade Organization to reduce the trade barriers of corn, then the United States will: have a domestic shortage of corn. export corn. import corn. neither export nor import corn.

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Transcript

00:01 So here we're talking tariffs, right? and we're given this picture of a market in guatemala between price and quantity.

00:07 We are given a demand curve that starts at 495 and slopes down.

00:13 Not my best demand curves here today.

00:17 There we go.

00:18 All the way down to 500.

00:21 We have a supply curve that starts at 245.

00:25 So we need to be very careful.

00:27 The bottom of this graph is 245, not zero zero.

00:31 And then we have this world price, right, of 270.

00:35 So this is the world price, i assume.

00:40 So if this is the case, right, it is going to supply 50 and it will then demand 450.

00:56 Absolutely.

00:57 Right.

00:57 So the first one is correct.

00:59 Right.

00:59 It will demand 450.

01:02 It will produce 50 and therefore we need to import 400.

01:12 Right.

01:12 But now we want to impose a tariff.

01:16 So the tariff that we want would look something like this.

01:20 We want a world price plus tariff.

01:24 Right.

01:24 We are going to increase the world price.

01:27 Right...

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