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tates) 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. 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. . . . MARKET FOR SHIRTS IN MEXICO Market for Shirts Price of Shirts $60 $50 $35 $20 $10 TARIFF PROBLEM SET 10 Domestic Supply Domestic demand 20 30 35 Quantity of Shirts (millions) 1. In the absence of trade with other countries, • the equilibrium price of shirts is_$35 • the equilibrium quantity of shirts is 20 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, W • the domestic production of shirts is 10 • . the domestic quantity demanded of shirts is • Mexico (exports or imports). millions of shirts. 30 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. 1 Frase

States) 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. MARKET FOR POTTERY IN MEXICO Market for Pottery Price of Pottery $85 . $65 $40 $15 $5 Dans Mauien hauna an х 20 6. In the absence of trade with other countries, the equilibrium price of pottery is $40 • the equilibrium quantity of pottery is 40 X 40 • the domestic production of pottery is • the domestic quantity demanded is • Mexico (exports or imports). millions of pottery units. 7. Assume Mexico enters a trade agreement and opens its market of pottery to the world, where the world price of pottery is $65. In the presence of trade with other countries, 60 Domestic Supply 60 70 20 Domestic demand Quantity of Pottery (millions) millions of pottery units. millions of pottery units. millions of pottery units. ommenti diadunaton in the malent formattan? Focus

. $15 $5 6. In the absence of trade with other countries, the equilibrium price of pottery is $40 ● the equilibrium quantity of pottery is 40 ● 20 ● 40 millions of pottery units. 7. Assume Mexico enters a trade agreement and opens its market of pottery to the world, where the world price of pottery is $65. In the presence of trade with other countries, the domestic production of pottery is the domestic quantity demanded is. Mexico (exports or imports)__ 60 70 Domestic demand Quantity of Pottery (millions) 60 20 millions of pottery units. millions of pottery units. millions of pottery units. 8. Does Mexico have a comparative advantage or comparative disadvantage in the market for pottery? Explain how you arrived at your conclusion. 9. For the market for pottery, would an import tariff expand Mexican production? Explain how you came to your conclusion. 10. If a tariff on pottery expands Mexican production, who benefits from the tariff? If the tariff on pottery does not expand Mexican production, ignore this question.