In the graph above, if Japanese capital in Japan is 6,000 and if American capita

Question

In the graph above, if Japanese capital in Japan is 6,000 and if American capital in America is 4,000 and if no capital movement is allowed, then (compared to the case where there is free movement of capital), identify the areas Japan gains/loses, the Us gains/loses, and the world gains/loses. Explain your answer.  

Percent per year (for rates of return, and MPK) Percent per year 4 MPKAmerica MPKjapan 4,200 4,800 6,000 10,000 -K,-Capital in Japan -KA-capital in America w, Japan's wealth-- ???Wa World capital World wealth

Explanation / Answer

ans....
1. True, a large country does not gain from a tax on foreign investment because taxing of foreign investment may lead the foreign companies(MNCs) to look for other alternatives to set up their production/service/office units. Whereas, the tariff on importing of commodities does not hurt the economy because it is imperative for people to import a certain set of commodities which are not produced in the home country. And thus, people will be compelled to pay these tariffs no matter what the conditions are.
2. Japan's gains are V, G, H, R and Japan's loses are B, C, and A. On the other hand, America's gains are also V, G,H, and R and their losses are d,e, and f.

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