Suppose the U.S. is an importer of product X and that there are no trade restrictions. Let us asuume that the U.S. consumers buy 1 million units of X each year, of which 400,000 are produced domestically and 600,000 are imported.
A. Suppose a technological advance in Japan causes the world price of X to fall by $100. Draw a graph to show this change affects the well-being of U.S. consumers and U.S. producers of product X. ( you can assume the U.S. is a small country in the world market for product X.)
I need help in figuring out how to go about and solve or know the effects so i can be able to draw a graph...
To analyze the effects of a technological advance on the well-being of U.S. consumers and producers of product X, you can follow these steps:
1. Understand the Concept: In this case, it's important to understand that the U.S. is a small country in the world market for product X. This implies that it cannot affect the world price, and it must take it as given.
2. Identify the Initial Equilibrium: Start by identifying the initial equilibrium in the market for product X without considering the technological advance. This will involve determining the quantity demanded by U.S. consumers, the quantity supplied by U.S. producers, and the quantity imported.
3. Analyze the Technological Advance: The technological advance in Japan causing the world price to fall by $100 means that X becomes cheaper for everyone in the world, including U.S. consumers. However, U.S. producers may face challenges due to more competitive imports. Consider how these changes will affect the equilibrium quantity and price in the market.
4. Assess the Well-being of U.S. Consumers: Calculate the consumer surplus before and after the technological advance. Consumer surplus represents the difference between what consumers are willing to pay for a product and what they actually pay. As the price falls, more consumer surplus is generated.
5. Evaluate the Well-being of U.S. Producers: Determine the producer surplus before and after the technological advance. Producer surplus is the difference between the market price and the minimum price at which producers are willing to supply a product. As imports increase, domestic producers may face lower prices, reducing their surplus.
6. Incorporate the Changes in a Graph: Once you have the numbers from steps 4 and 5, you can plot them on a graph. The x-axis will represent quantity, and the y-axis will represent price. Start by drawing the initial supply and demand curves, then indicate the changes in consumer and producer surplus.
Remember, the specific numerical values will vary depending on the data given. Analyzing each step will help you understand how to draw the graph and explain the effects on the well-being of U.S. consumers and producers.