1) Explain how any country, regardless of factor endowments, can benefit from trade?
2) Use the table below to determine the comparative advantage for each country (show your work).
| Total Production for Mexico and the United States | ||||
|---|---|---|---|---|
| Mexico | United States | |||
| Possibility | Burgers | Phones | Burgers | Phones |
| A | 12 | 0 | 21 | 0 |
| B | 8 | 8 | 14 | 7 |
| C | 4 | 16 | 7 | 14 |
| D | 0 | 24 | 0 | 21 |
3) From your answer in the previous question. what would be an agreeable terms of trade for 1 burger?
4) At the end of the video, a supply and demand graph of the car market for both countries was shown. Explain why Mexico exported cars to the United States.
5) Suppose, the world price for cars is $10,000. Further, the US has a quantity demand at that price of 1,000 cars, and a quantity supplied of 200. How many cars will the US import to satisfy domestic demand?
6) From the previous question, suppose the US imposes a $2,000 tariff on each car. Further, suppose that domestic quantity demand falls by 200 and domestic quantity supplied rises by 200. What is the new quantity of imports? How does a tariff harm societal welfare?
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