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U.S.'s comparative advantage

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1. The market for chicken sandwich, considered a normal good, is in equilibrium. Examine the effect of the following events on the equilibrium price and quantity of chicken sandwich.
(a) An increase in consumers' preference for beef
(b) Producers expectation of future profit

2. President Obama is considering implementing trade tariffs and quotas against US trading partners. As head of the President's Economic Advisory Team:
(a) Argue the point that free trade is beneficial to the US and that the President should not implement the proposed trade restriction.
(b) Examine the benefits and drawbacks of each of the President's proposal:
a. Tariffs
b. Quotas

3. What causes the US to have comparative advantage over other countries in certain products?

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Solution Summary

Producers' expectations of future profit are emphasized.

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Discussion Questions

1. The market for chicken sandwich, considered a normal good, is in equilibrium. Examine the effect of the following events on the equilibrium price and quantity of chicken sandwich.
(a) An increase in consumers' preference for beef

Beef is a substitute for chicken, purchasing more of one decreases the purchasing of the other. As a result the Demand Curve will shift left, at every price, consumers demand less chicken, which leads to a decrease in both price and quantity demanded.

(b) Producers expectation of future profit

If producers expect future profit, others might find out about it and enter the market to take advantage of that future profit, which will increase the supply of of chicken, in turn decreasing the price and eliminating economic profit.

2. President Obama is considering implementing trade tariffs and quotas ...

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