1. What is theory of comparative advantage? Which country should be importing goods and which country should be exporting goods.
2. What happens to the consumer surplus, producer surplus and total surplus when a country imports? Also explain what happens to consumer surplus, producer surplus and total surplus when a country exports?
3. Refer to the graph below:
figure
Suppose the world price in this market is $10 per unit. Further assume that government imposes a tax of $20 per unit. Calculate consumer, producer and total surplus with free trade. Also calculate the welfare after the imposition of taxes. Analyze your results.
4. Distinguish between explicit and implicit costs. Also provide an example of both these costs. How does these costs affects the accounting and economic profits?
5. Calculate the missing values in the table below.
| Labor |
Output
|
Marginal Product
|
Variable Cost
|
Fixed Cost
|
|
0
|
0
|
|
$0
|
$5
|
|
1
|
100
|
100
|
$5
|
$5
|
|
2
|
250
|
|
$10
|
$5
|
|
3
|
350
|
|
$15
|
$5
|
|
4
|
|
50
|
$20
|
$5
|
|
5
|
|
25
|
$25
|
$5
|
|
6
|
430
|
|
$30
|
$5
|