Quote (Nearin @ Dec 9 2014 04:06pm)
Ok so here is my question. Before people ask it is from last years final exam as prep for this years.
I am okay on most of the concepts but we are usually given World price home price, etc in order to do this and I am a little lost on where to begin.
Really having trouble applying my knowledge without the numerical examples i'm used too
Guesses:
a) I'm assuming since the US in this question is a large country and primary producer that they set the world price, does this mean that both Chinese and American consumers pay 50% more?
Increase's the price of pecan for china comparative to US, China experiences a loss in its terms of trade, and the USA experiences a gain in TOT. China loses as it now pays more for pecans losing, consumer surplus. USA Gains as qoutas out weigh dead weigh loss.
c) Lowered demand for pecans, decline in pecans industry and rise in trade volume of subsitutes
P.s. I have 6 questions like this if someone would be willing to answer take it and answer them i could pay you, would pay even more for someone to go through it and explain but I can figure it out with just answers, anyone interested can PM with a proposed price, or to see all the questions.
I dont have detailed education on economics, so my thoughts are just a shot in the dark.
A) I'd sort of agree. I'd imagine that people within the States would pay 50% more on average while Chinese markets may pay a bit more than 50% more because, and I could be wrong, import fees would increase due to the higher price from origin. In other words, instead of a declared value of $1, they'd be $1.50 each, which could incur higher import taxes?
I'm assuming that means they voluntarily limit how much they'll let go off to China, correct? Again, no formal education on this kind of stuff, but I'd guess that the US would gain in the sense that it would have more pecans that they could sell later on if demand allows them to push prices higher and China loses because prices could rise because of increased demand and increased scarcity of pecans.
C) Short term: increased demand (because China is used to getting a 100 pecans, not less), Long term: Decreasing demand, rise in substitutes
EDIT: Reread; it's asking about price rise instead of the reduced supply. I'd go with answer minus the decline; one year of bad harvest shouldn't necessarily imply an industry decline.
If you don't have numbers to work with and you think easier with them, just pick an arbitrary number, with some common sense of course. I like to use 100 or 1000 because it translates well to percentages, is very manageable and simple, and works for most problems.
This post was edited by SasorizaKR on Dec 10 2014 02:00am