Answer questions below based upon the following information about country A\'s m
ID: 1194124 • Letter: A
Question
Answer questions below based upon the following information about country A's market for its importable good. Country A’s supply curve: P=0.5Q Country A’s demand curve: P=40-0.25Q where P denotes price and Q denotes quantity
Suppose that country C would be willing to export the product to A for $15 per unit, while country B, the low-cost world producer, is willing to export at a price of $10 per unit. A per unit tariff of $10 on imports from both B and C will be considered.
a) (2 points) Illustrate this market in country A on a demand and supply diagram. (Please show all the intercepts.) Let the lines SB and SC denote the export supply curves to A’s market from countries B and C, respectively. Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of the product imported from countries B and C if the above tariff is imposed, respectively.
b) (3 points) Under free trade, from whom will country A import this product? How many units will it import and what will be the domestic price of this product in country A?
c) (3 points) If A imposes a per unit tariff of $10 on imports from both B and C, from whom will it import this product? How many units will it import and what will be the domestic price of this product in country A?
d) (3 points) If A forms a customs union (CU) with C, from whom will it import this product? How many units will it import and what will be the domestic price (the post agreement price) of this product in country A?
e) (1 point) Use the diagram you drew in part a) or you can draw a new diagram to illustrate A’s welfare change due to the formation of the CU with C.
Explanation / Answer
Although the fund's asset portfolio is comprised of securities with no default risk, the securities remain exposed to interest rate risk. For example, if interest rates increase, the market value of the fund's Treasury security portfolio will decrease. Further, if interest rates decrease, the realized yield on these securities will be less than the expected rate of return because of reinvestment risk. In either case, investors who liquidate their positions in the fund may sell at a Net Asset Value (NAV) that is lower than the purchase price.