Chapter 9. Chapter 9 (Chapter 19 Macro)

Step 1

Work It Out
Chapter 9 (Chapter 19 Macro)
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You must read each slide, and complete any questions on the slide, in sequence.

Question

According to Chinese government statistics, China imported over 1 million cars in 2012. Let’s see what would happen to consumer and producer surplus if China were to ban car imports. To keep things simple, let’s assume that if car imports were banned, the equilibrium price of cars (holding quality constant) would rise by $5,000.

The plot shows the quantity of midsized cars versus the price of midsized cars. The curve of the domestic demand for cars is a decreasing straight line that intersects both the vertical and horizontal axes. The curve of the domestic supply of cars is an increasing straight line passing through the origin.  There is a horizontal dashed line at value 35000 dollars on the vertical axis. This line intersects with the domestic supply and domestic demand curves at the same point. The triangle over the dashed line formed by the dashed line, the vertical axis, and the domestic demand curve is labeled as A. The curve of the world car supply is a horizontal straight line at value 30000 dollars on the vertical axis. The trapezoid under the dashed line formed by the horizontal dashed line, the vertical axis, the world supply curve, and the domestic supply curve is labeled as B. The triangle over the world supply curve formed by the world supply curve, the domestic supply curve, and the domestic demand curve is labeled as C. The triangle under the world supply curve formed by the world supply curve, the domestic supply curve, and the vertical axis is labeled as D.  The world supply curve intersects with the domestic supply curve and there is a vertical dashed line connecting the point of intersection with the horizontal axis. The world supply curve also intersects with the domestic demand curve and there is a vertical dashed line connecting the point of intersection with the horizontal axis. The segment of the horizontal axis between two vertical dashed lines is labeled as F. There is a horizontal double side arrow under the horizontal axis between two vertical dashed lines. This arrow is labeled as 1000000 imported cars.  The triangle under the domestic supply curve formed by the domestic supply curve, the horizontal axis, and the vertical dashed line connecting the domestic supply curve and the horizontal axis is labeled as E. The triangle under the domestic demand curve formed by the domestic demand curve, the horizontal axis, and the vertical dashed line connecting the domestic demand curve and the horizontal axis is labeled as G.
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Correct! Total gains from trade when imports are allowed equals domestic consumer surplus plus domestic producer surplus. Consumer surplus equals areas A + B + C and producer surplus equals area D, so the total gain is A + B + C + D.
Sorry! The area you selected is a part of the gains from trade, but it does not equal the total gains from trade. To review how to determine the gains from trade, please see the section “The Costs of Protectionism.”

Step 2

Question

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Step 3

Question

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