Question

Consider the following trade situation: The U.S. demand for imports of tomatoes from Mexico is QD...

Consider the following trade situation:

The U.S. demand for imports of tomatoes from Mexico is QD = 24 - P

The supply of tomatoes to the United States from Mexico is QS = 6 + P

The units are million boxes and U.S. dollars per box

One U.S. dollar buys 10 Mexican pesos

1. Draw a graph showing clearly the quantity of US imports of tomatoes from Mexico and their price in dollars

2. There is free trade in tomatoes (no tariffs or quotas on imports from Mexico), but the Mexican peso increases in value against the dollar, so that one dollar only buys 5 pesos. The cost of tomatoes for the U.S. consumer is now double what it was in the base case for each quantity imported. In the table below show the quantity of imports supplied at various prices before (from the equation above) and after the change in the currency values.

Quantity of Tomatoes US Price before currency change Mexican Price US Price after Currency Change
3
4
5
6
7
8
9
10
11
12

3. Draw a graph of the problem in U.S. dollars, showing clearly the price that U.S. importers (the buyers) pay and the quantity of trade that will occur.

4. What is the equation for the new supply curve? How has the change in currency values affected the shape of the supply curve? How has it affected the responsiveness of Mexican tomato supply to changes in US prices?  

5. What is the price of tomatoes in pesos before and after the change in the value of the peso?  What is the price in dollars before and after the change?

Homework Answers

Answer #1

Solution:

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following trade situation: The U.S. demand for imports of tomatoes from Mexico is QD...
Consider the following trade situation: The U.S. demand for imports of tomatoes from Mexico is QD = 24 - P The supply of tomatoes to the United States from Mexico is QS = 6 + P The units are million boxes and U.S. dollars per box One U.S. dollar buys 10 Mexican pesos Draw a graph showing clearly the quantity of US imports of tomatoes from Mexico and their price in dollars. [Insert an image of your graph here] There...
Assume that the Polish currency (called zloty) is worth $.32. The U.S. dollar is worth .7...
Assume that the Polish currency (called zloty) is worth $.32. The U.S. dollar is worth .7 euros. A U.S. dollar can be exchanged for 8 Mexican pesos. Last year a dollar was valued at 2.9 Polish zloty, and the peso was valued at $.10. a. Would U.S. exporters to Mexico that accept pesos as payment be favorably or unfavorably affected by the change in the Mexican peso’s value over the last year? b. Would U.S. importers from Poland that pay...
Suppose a U.S. firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for...
Suppose a U.S. firm buys $200,000 worth of stereo speaker wire from a Mexican manufacturer for delivery in 60 days with payment to be made in 90 days (30 days after the goods are received). The rising U.S. deficit has caused the dollar to depreciate against the peso recently. The current exchange rate is 5.50 pesos per U.S. dollar. The 90-day forward rate is 5.45 pesos/dollar. The firm goes into the forward market today and buys enough Mexican pesos at...
#1. Your firm imports components from Canada (paying in Canadian dollars), produces cars in the US,...
#1. Your firm imports components from Canada (paying in Canadian dollars), produces cars in the US, and exports those cars to Mexico (receiving Mexican pesos). Using foreign exchange forward contracts, which of the following steps could you take to reduce your foreign exchange risk (mark all that apply)? A. Buy Mexican peso forward against the USD. B. Sell Mexican peso forward against the USD. C. Buy Canadian dollars forward against the USD. D. Sell Canadian dollars forward against the USD....
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange...
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange rate is 16 Mexican pesos per U.S. dollar. It is estimated that Mexico’s currency will be devalued in the international market at an average 2.7 % per year relative to the U.S. dollar over the next several years. The estimated before-tax net cash flow (in pesos) of the project is a follows: End of Year Net Cash Flow (pesos) 0 - 900,000 1 480,000...
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange...
Apex, Inc. is a U.S.-based firm investing in a two-year project in Mexico. The present exchange rate is 15 Mexican pesos per U.S. dollar. It is estimated that Mexico’s currency will be devalued in the international market at an average 2.1 % per year relative to the U.S. dollar over the next several years. The estimated before-tax net cash flow (in pesos) of the project is a follows:                                     End of Year    Net Cash Flow (pesos)                                                 0                      - 900,000                                                 1                         480,000                                                 2                        ...
Around 1900, a small town on the U.S.-Mexican border was experiencing a strange currency exchange situation....
Around 1900, a small town on the U.S.-Mexican border was experiencing a strange currency exchange situation. On the Mexican side of the border, a U.S. dollar was only worth ninety Mexican peso (1 USD = 0.90 MXN), while on the U.S. side, a Mexican peso was only worth ninety U.S. cents (1 MXN=0.90 USD). In other words, the citizens of both countries discounted the other country's currency by ten percent. In this particular town, the international border ran right down...
Now suppose that the “Avocados from Mexico” trade group airs a wildly successful commercial for avocado...
Now suppose that the “Avocados from Mexico” trade group airs a wildly successful commercial for avocado toast during the Super Bowl, and it goes viral. Explain what happens to the following quantities after this ad campaign. Assume the US border tax is in place before and after the commercial, and that the US corporate tax is lowered to 21% before and after the commercial. When you give each answer, briefly explain why. Some of these are ambiguous, so in order...
"one u.s. dollar is worth eighteen mexican pesos." that statement is part of microeconomics, because we...
"one u.s. dollar is worth eighteen mexican pesos." that statement is part of microeconomics, because we are talking about the cost in pesos of a single good, namely a dollar. Why is this reasoning incorrect? A. An exchange of dollars for pesos, implicitly, an exchange across international borders. Any such exchange is by definition macroeconomic. B. What makes the statement about dollars and pesos microeconomic is the fact that individual consumers can perform currency exchange transactions. C. Mexico and the...
Suppose the U.S. imports cars from the UK​ manufacturer, McLaren. Consider an appreciation of the pound....
Suppose the U.S. imports cars from the UK​ manufacturer, McLaren. Consider an appreciation of the pound. Which of the following statements correctly describe the effects of this​ change? ​(Check all that apply.​) Hold all other prices constant. A. U.S. consumers pay more dollars for each McLaren car they import from the UK. B. McLaren supplies a greater quantity of dollars to the foreign exchange market. C. U.S. consumers increase their purchases of McLaren cars. D. ​McLaren's dollar revenues fall. To...