Economics: Other Economics Problems – #29385


Question: Question 2: Read the New York Times article, “China Export Restrictions on Metals

Violate Global Trade Law, Panel Finds,” by David Jolly from March 26, 2014

(reproduced below) as background for the following questions.

Part A: China has a comparative advantage in the production of rare earth elements and other metals. The article describes measures like tariffs and quotas that China has been using to restrict exports. Use a detailed diagram to show supply and demand in the earth metals market in China assuming that China completely prohibits all exports (and imports).

Part B: Imagine that after the WTO ruling against China is forced to end its use of trade

restrictions. Use a detailed diagram to show supply and demand in the metals market in

China once it fully participates in the international market for metals. Be sure to label

domestic production and consumption, as well as domestic price and world price.

Part C: Use a welfare table to show the consumer, producer, and total surplus before and after China drops the trade restrictions, as well as the changes in the surpluses. Discuss who gains and who loses when the country opens up to world trade. Do the gains exceed the losses?

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