MANAGERIAL ECONOMICS M INDIVIDUAL ASSIGNMENT

THE CIRCUSTOM OF THE CASE:

BALANCE SHEET OF INDIA NATURAL RUBBER

TONNES

APRIL TO
JANUARY

2012-2013

2013-2014

CHANGE
PRODUCTION
798,200

723,000

-9.42%
CONSUMPTION

811,110

IMPORT
195,543

279,627

+43%
EXPORT
15,632

5,357

-65.73%

Questions:

(a) Using the concepts and diagrams outlined in our seminars, explain fully the impact on India’s economic welfare of access to the world market for natural rubber

International trade provide the comparative advantage. All countries can be the beneficiaries when trade with one another, because trade allows each country to specialize in doing what it does best. However, the …show more content…

In conclusion, as the result of 10% decrease in rubber production, the price of domestic rubber increases and the quantity of rubber sold decreases, moreover the equilibrium point also shift up and left.

(c) Describe fully the economic welfare effects of a significant import tariff in India

0

An import tariff means the tax caused by production produced oversea and sold domestically. When illustrate Figure c-1 shows that, as an importing country, before import tariff, India domestic price falls and equals the world price. The consumer surplus was area A+B+D+E+F+G, and producer surplus refer to area C, at world price, the tax revenue that government earn is nothing. Furthermore, as indicated earlier, when India assess trade internationally, domestic sellers are suffer loss by world price and contrastingly, domestic buyer gain from global trade. Moreover, without tariff, the tax revenue government earned nothing and total economic welfare increased.

However, when government concentrating attention on import tariff, the economic welfare changes. As Figure c-1 shows that, a tariff make the price of import rubber above the world price by amount of the tariff. When compete with suppliers of rubber imported, domestic producer now can sell their natural rubber for world price plus tariff. Hence, either domestic suppliers or imported suppliers increase the