Reference no: EM133184419

Question 1 In Japan, there are tariffs, price supports, and import restrictions such as quotas on rice. Assume that the United States is exporting rice to Japan and importing specific types of chemicals from there.

a. Use the standard trade model to explain how a decrease in tariff rates can affect the relative prices in Japan.

b. Use a relative supply and demand graph to explain the effects on terms of trade in Japan.

c. Assume that Brazil, another country who is importing rice, tries to impose more import restrictions by increasing the tariff rates on rice. How does this can affect the terms of trade for the U.S. based on the standard trade theory predictions? (Explain each change step by step to get full credit; start by relative prices for Brazilian consumers, RD and RS, and finally terms of trade for the U.S.)

Question 2 Consider the trade of rice and chemicals between the U.S. and Japan in the previous question.

a. Assume that we had a lot of rain in Japan during the last year which caused a growth in the rice industry. Show the effect of this change on the production possibilities frontier for Japan. Can we explain this change using the Ricardian model?

b. How does this change can affect the RS-RD model of Japan? Use the terms of trade for Japan as relative prices in your graphing model; does it increase or decrease?

c. How does this change in terms of trade for Japan affect the welfare of the U.S. consumers? Is this an export-biased growth or an import-biased growth?

d. Assume that the U.S. has lost parts of the lands used for rice farming due to a natural disaster.