International Trade - Exchange Rates Lecture 2

Podcast

Play an AI-generated podcast conversation about this lesson

Questions and Answers

What is the effect of a tariff on consumers?

Consumers experience a higher quantity available.

Consumers receive tariff revenue directly.

Consumers are hurt due to increased prices. (correct)

Consumers benefit from lower prices.

Which of the following correctly identifies who benefits from a tariff?

The government is helped through tariff revenue. (correct)

Domestic producers are hurt while consumers benefit.

Foreign producers benefit from the higher prices.

Consumers gain from increased import options.

If Japanese automobiles become more popular, what will happen in the foreign exchange market for Yen?

The exchange rate for Yen will remain unchanged.

The value of Yen will depreciate against the Dollar.

The demand for Yen will shift to the left.

Yen will appreciate in value against the Dollar. (correct)

What occurred to the price of the Norwegian Kroner from Thursday to Friday?

The Kroner appreciated, making it more expensive relative to the Dollar. Signup and view all the answers

How much would you pay for 10 Norwegian Kroner on Thursday if the rate is $0.1752 per Kroner?

$1.752 Signup and view all the answers

Based on the exchange rate change from Mon to Tues for the Kroner, what can be inferred?

The Dollar weakened against the Kroner. Signup and view all the answers

What relationship does an increase in tariff generally have on the demand for domestic products?

Demand for domestic products increases. Signup and view all the answers

What price level corresponds to the equilibrium under no trade?

$15 Signup and view all the answers

In the context of free trade, what is the relationship between Q2 and Q1?

Q2 is greater than Q1 Signup and view all the answers

According to the kinked supply curve model, which quantity represents domestic production with tariffs applied?

Q5 Signup and view all the answers

What effect do tariffs have on the quantity of imports?

Decrease imports compared to free trade levels Signup and view all the answers

What is the price level at equilibrium when tariffs are imposed?

$10 Signup and view all the answers

Which quantity directly represents imports in a free trade scenario?

Q2 - Q3 Signup and view all the answers

What is a likely outcome of implementing a tariff based on the kinked supply curve?

Lower quantity at higher prices Signup and view all the answers

What does Q2 represent in the context of free trade?

Domestic production plus imports Signup and view all the answers

Study Notes

International Trade - Exchange Rates

International trade lectures cover exchange rates and practice questions, specifically in lecture 2
Graphs illustrate the relationship between supply and demand curves, domestic production, imports, and tariffs in different trade scenarios
Different trade scenarios are shown (no trade, free trade, tariffs)
The effects of tariffs on consumers, domestic producers, and the government are discussed
Tariffs hurt consumers and benefit domestic producers and the government as these receive tariff revenue.
Tariffs reduce the quantity of imports.
If a tariff is added to imported cars from Japan, the demand for American-made cars may increase.

Currency Appreciation

If Japanese cars become popular, the Yen (Japanese currency) value appreciates relative to the US dollar. This is reflected in a shift to the right of the demand curve for Yen.
The exchange rate between the US dollar and the Norwegian krone fluctuates
Currency quotes (e.g., US$ per KR) change over time, and these changes have implications on the cost of goods.

Calculating Costs

When buying a Volvo (Sweden), you need to understand the effect of exchange rates on the final price.
Given a price in US dollars and the current exchange rate between US dollars and the Swedish Krona, the price of the Volvo in US dollars, based on the exchange rate, can be calculated.

Foreign Exchange Quotes

Foreign exchange quotes show the exchange rates between different currencies, for example, the US dollar and the Canadian dollar (USD/CAD).
The domestic currency is always on the left side of the exchange rate.
In direct quotes, the base currency is on the left, while the quote currency is on the right.

Studying That Suits You

Use AI to generate personalized quizzes and flashcards to suit your learning preferences.

Description

This quiz focuses on exchange rates in international trade as covered in lecture 2. It includes questions on the impact of tariffs, supply and demand curves, and currency appreciation. Test your understanding of trade scenarios and their effects on consumers and producers.