Trade Problem Set 90 2-7

1. Suppose there are only two countries, the US and China producing and consuming clothing. Suppose in free trade China exports clothing to the US.

1. At the free trade price, in which country is the supply of clothing greater than demand?


2. At the free trade price how does world supply compare with world demand for clothing? (i.e., greater, less, or equal)


3. If the US and China were in autarky rather than free trade, in which country would the price of clothing be higher?


4. Based on our class presentation, in moving from autarky to free trade would the price of clothing rise, fall or stay the same in the US?


5. Based on our class presentation, in moving from autarky to free trade would the price of clothing rise, fall or stay the same in China?


6. Starting from free trade, if the US places a tariff on imports of clothing, how would the price of clothing change in the US?


7. Based on our class presentation, starting from free trade, if the US places a tariff on imports of clothing, how would the price of clothing change in China?


8. How would a tariff on US imports of clothing affect the amount of clothing produced in the US?

International Trade Theory and Policy - Chapter 90: Last Updated on 1/06/08