1. The country of Pepperland exports steel to the Land of Submarines. Information for the supply and demand curves in each country, in a world without trade, is given in the table below.
a. What would be the equilibrium price and quantity in each country in a world without trade? How can you tell?
b. What would be the equilibrium price and quantity in each country if trade is allowed to occur? How can you tell?
c. Sketch two supply and demand diagrams, one for each country, in the situation before trade.
d. On those diagrams, show the equilibrium price and the levels of exports and imports in the world after trade.
e. If the Land of Submarines imposes an import quota of 30, explain in general terms whether it will benefit or injure consumers and producers in each country.
f. Does your general answer change if the Land of Submarines imposes an import quota of 70?
Pepperland Land of Submarines
2. Fresh Maine lobsters are flown from the United States to Japan. Conversely, fresh tuna is flown from Japan to the United States. How would you expect this pattern to affect the number of jobs in fishing in both countries? How would you expect it to affect wages of those who are working in the fishing industry in both countries? Do you see any benefit to consumers?
3. Which would be more expensive for the economy as a whole:
a. If the government just paid the salaries of workers who have lost their jobs due to imports; or
b. If the government saved the jobs of these workers by protecting their industry. Explain.
4. Compare the benefits and costs of two alternatives for dealing with the fear that imports of a key product could be cut off. The first alternative is blocking imports of that product now, so as not to become dependent on it. The second alternative is creating a stockpile of the key material.
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