This problem set explores how open trade and tariffs impact the markets. The problem set assumes that . Mexico produces

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This Problem Set Explores How Open Trade And Tariffs Impact The Markets The Problem Set Assumes That Mexico Produces 1 (65.19 KiB) Viewed 31 times

This problem set explores how open trade and tariffs impact the markets. The problem set assumes that . Mexico produces and sells shirts and pottery, and the graphs illustrate the markets for shirts and pottery in Mexico. the market prices for shirts and pottery are determined in a perfectly competitive market without externalities. . . MARKET FOR SHIRTS IN MEXICO Market for Shirts ● the production decisions for shirts and pottery are determined in a perfectly competitive market without externalities. . the goods are denominated in U.S. dollars, even though Mexico uses the peso as its currency unit. . Price of Shirts $60. . $50 $35 TARIFF PROBLEM SET $20 $10 10 20 1. In the absence of trade with other countries, the equilibrium price of shirts is. $35 the equilibrium quantity of shirts is 20 30 35 Domestic Supply millions of shirts. 2. Assume Mexico enters a trade agreement and opens its market of shirts to the world, where the world price for shirts = $20. In the presence of trade with other countries, Domestic demand Quantity of Shirts (millions) the domestic production of shirts is ● the domestic quantity demanded of shirts is Mexico (exports or imports)_ millions of shirts. millions of shirts. millions of shirts. 3. Does Mexico have a comparative advantage or comparative disadvantage in the market for shirts? Explain how you arrived at your conclusion. 4. For the market for shirts, would an import tariff expand Mexican production? Explain how you came to your conclusion. 5. If a tariff on shirts expands Mexican production, who benefits from the tariff? If the tariff on shirts does not expand Mexican production, ignore this question.