Vietnam and Japan can produce rice. Suppose the inducement costs of producing commercial-grade rice in Vietnam and Japan are $400 and $450 respectively. Additionally, Vietnamese farmers can produce 600 tons of rice at an autarkic price of $500 per ton. Japanese farmers can produce the same amount of rice (500 tons) at an autarkic price of $640 per ton. However, Japanese consumers are willing to pay (WTP) $700 per ton to make rice available in the Japanese market. Explain the concepts and benefits of international trade—in the light of the following questions—if the Vietnamese farmers can increase autarkic production by 100 tons at a world price of $510 per ton while the Japanese consumers—as a result of international trade— can increase autarkic consumption by 50 tons at the prevailing world price of $510 per ton:

(i) What is the producer surplus in Vietnam before international trade?

(ii) What is the producer surplus in Vietnam after international trade?

(iii) What is the consumer surplus in Japan before international trade?

(iv) What is the consumer surplus in Japan after international trade?

(v) In the light of the monetized net benefits (before and after autarky), is international trade a zero-sum game? Why?

(vi) Are the gains from trade asymmetric (did one nation gain more than the other)? Why?

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Solution International trade or trade International trade refers to the sale and purchase of product... View the full answer