Economics problems Mathematics & Economics Math Problem (Math Problem Sample)
This paper answered the below questions:
The nation of Malawi is “small” and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve is: D=400-10P and the supply curve is: S=50+5P
Determine the free trade equilibrium (5 marks)
Using an appropriate illustration, show how Malawi would move from an autarky position and become either a net importer or exporter (10 Marks)
Show how an imposition of an import tariff would:
The increase in the domestic price. (5 marks)
The consumption distortion loss. (5 marks)
The production distortion loss. (5 marks)
(Total: 25 Marks)
If tariffs, quotas, and subsidies each cause net welfare losses, why are they so common, especially in agriculture. (Hint: Make Reference to Common Agriculture Policy adopted by the European Union). (5 marks)
Suppose that country A is labour abundant and produces two products, tea and shoes. Given its production schedule, tea is capital intensive while while shoes is labour intensive. On the other hand, country B is capital intensive and exports its car intensive products on the international market. What would be the effect on the real income distribution within the economies if there were free trade on manufactured goods? Hint: Make reference to O-H model (20 Marks)
* Substitute the price per bag ($10) into the demand and supply expressions;
D = 400 –(10×10) = 300
Thus, import demand is given as: MD=D-S=350-15P=200
Domestic price is given as the equated result of demand and supply, i.e.
Therefore, at free trading equilibrium, the price per unit in both Malawi and the foreign country from which it imports is $23.3 and Malawi would be in an economic position to serve both home and foreign consumers.
* Autarkic price for peanuts is $23.3 while the international price is $10. Therefore, at $10, consumer welfare in both countries is high since the cost of global output is low hence unit price is closer to marginal price per unit. For Malawi to move from an autarkic state to being a net importer, it has to operate within the trade gains indicated in the below graph.
The import quantity is given as QD-QS=300-100=200 units
* Imposing a tariff implies applying a certain amount of tax per unit import to Malawi.
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