QUESTION 10-8 (SIMULATION) The chloquestionlo simulation Excel file on the website depicts the free trade equilibrium for Zombio, which produces coffee and tractors. In the simulation you can change the tariff rate on tractors, the share of income spent on tractors, the factor endowments, and the world price of tractors. The junta in charge wants to raise some revenue to pay the wages of its soldiers. Rather than imposing taxes on domestically produced goods, the government decides to raise import duties to 50 percent. The simulation has the starting values: K=2,L=7, tariff =0, delta =0.5. Note that some of the values have to be changed before you can answer the questions below. a. Simulate the policy change of the government. Which group in Zombio is benefiting from the policy and why? What is the total income cost (in terms of tractors) of the policy for Zombio? The world market for tractors is booming. The increased demand from other countries increases the relative price of tractors by 20 percent. b. What does this mean for the terms of trade for Zombio? c. What happens to utility and income (in terms of tractors)? Why? As a result of the high tariff rate the local tractor industry faces less competition from abroad, becomes corrupted, and through mismanagement loses half of Zombio's capital stock. d. Simulate the decline in the capital stock. Why does the volume of trade increase? The junta has been talking about the benefits of the revolution for such a long time that the people of Zombio become thirsty for more coffee. They start to spent a larger share of their income on coffee than before. e. Change the correct simulation parameter to reflect the change in preferences. What happens to the volume of trade and why? Introduction This simulation allows you to experiment with figure 10-10 from the main text. You can change final goods prices, capital intensity of production, share of income spent on each good and factor endowments. The simulation will automatically generate indifference curves, production possibility frontiers and production levels. How to work with the simulations? We offer you a series of simulations that should enhance your theoretical understanding of international trade. Often the simulations copy a figure or table from the book and allow you to experiment with different parameter settings. Sometimes a completely new model is presented which you should try to grasp with the knowledge of the main text. This introduction explains in general how to handle the simulations. Every file begins with this general introduction. No new information will be added. So if you read and understood this introduction once you can skip it the next time. The next group of sheets will be the most important. It contains the actual simulations you can work with. The sheets with the simulations contain the interactive part of the file. The numbers in yellow can be changed. Following the insertion of a number and pushing the "enter" button (sometimes you will also have to hit a special button). graphs and numbers will change. There are limitations to the values you can put in the red areas. These are summarized below: This information should allow you to work with the simulations. Good luck! fion 10-8 "(in terms of tractors,domestic prices) QUESTION 10-8 (SIMULATION) The chloquestionlo simulation Excel file on the website depicts the free trade equilibrium for Zombio, which produces coffee and tractors. In the simulation you can change the tariff rate on tractors, the share of income spent on tractors, the factor endowments, and the world price of tractors. The junta in charge wants to raise some revenue to pay the wages of its soldiers. Rather than imposing taxes on domestically produced goods, the government decides to raise import duties to 50 percent. The simulation has the starting values: K=2,L=7, tariff =0, delta =0.5. Note that some of the values have to be changed before you can answer the questions below. a. Simulate the policy change of the government. Which group in Zombio is benefiting from the policy and why? What is the total income cost (in terms of tractors) of the policy for Zombio? The world market for tractors is booming. The increased demand from other countries increases the relative price of tractors by 20 percent. b. What does this mean for the terms of trade for Zombio? c. What happens to utility and income (in terms of tractors)? Why? As a result of the high tariff rate the local tractor industry faces less competition from abroad, becomes corrupted, and through mismanagement loses half of Zombio's capital stock. d. Simulate the decline in the capital stock. Why does the volume of trade increase? The junta has been talking about the benefits of the revolution for such a long time that the people of Zombio become thirsty for more coffee. They start to spent a larger share of their income on coffee than before. e. Change the correct simulation parameter to reflect the change in preferences. What happens to the volume of trade and why? Introduction This simulation allows you to experiment with figure 10-10 from the main text. You can change final goods prices, capital intensity of production, share of income spent on each good and factor endowments. The simulation will automatically generate indifference curves, production possibility frontiers and production levels. How to work with the simulations? We offer you a series of simulations that should enhance your theoretical understanding of international trade. Often the simulations copy a figure or table from the book and allow you to experiment with different parameter settings. Sometimes a completely new model is presented which you should try to grasp with the knowledge of the main text. This introduction explains in general how to handle the simulations. Every file begins with this general introduction. No new information will be added. So if you read and understood this introduction once you can skip it the next time. The next group of sheets will be the most important. It contains the actual simulations you can work with. The sheets with the simulations contain the interactive part of the file. The numbers in yellow can be changed. Following the insertion of a number and pushing the "enter" button (sometimes you will also have to hit a special button). graphs and numbers will change. There are limitations to the values you can put in the red areas. These are summarized below: This information should allow you to work with the simulations. Good luck! fion 10-8 "(in terms of tractors,domestic prices)