## Home is a âsmall countryâ in this market. PDand PW are prices domestically

Home is a âsmall countryâ in this market. PDand PW are prices domestically (that is, in autarky) and worldwide, respectively.Given that the demand and supply curves are linear, what are the values of the price at the intercepts A and F? [Hint: There is enough information on this graph to figure these values out, and the values are important to do the calculations below. Once you figure these out it might not be a bad idea to write down the equations of the curves in slope-intercept form. NOTE: F will be a negative number!!! Itâs weird, but donât worry about it. Proceed with the rest of the problem as usual.]With trade, what is the quantity of imports?What is the consumer surplus to H in autarky? What is CS with trade?What is the producer surplus to H in autarky? What is PS with trade?What are the gains from trade to H?Advanced

International Trade Theory and Policy

Problem

Set 5

100

points total

(40

points) Refer to the graph below to answer the following questions.

Home’s

Import-Competing Industry

Note:

All curves are linear.

.png”>

Home is a âsmall

countryâ in this market. PDand PW are prices

domestically (that is, in autarky) and worldwide, respectively.

Given

that the demand and supply curves are linear, what are the values of the

price at the intercepts A and F?

[Hint: There is enough information on this graph to figure these

values out, and the values are important to do the calculations

below. Once you figure these out it

might not be a bad idea to write down the equations of the curves in

slope-intercept form. NOTE: F will

be a negative number!!! Itâs weird,

but donât worry about it. Proceed

with the rest of the problem as usual.]

With

trade, what is the quantity of imports?

What

is the consumer surplus to H in autarky?

What is CS with trade?

What

is the producer surplus to H in autarky?

What is PS with trade?

What

are the gains from trade to H?

Now suppose H imposes a tariff of 20% on

imports of this good.

What

is the quantity demanded after the tariff?

What is the Consumer Surplus?

How

much is domestically supplied after the tariff? What is the Producer Surplus?

What

is the tariff revenue?

How

large is the deadweight loss from the tariff?

2.

(40

points) Suppose a âlarge countryâH has an excess demand curve for good X given

by P=70-2X. The worldwide excess supply

curve for good X is P=10+X.

a.

Graph

the curves.

b.

What

is the free trade equilibrium quantity and price when there is no tariff? Mark the equilibriumon your graph as point A.

c.

What

is consumer surplus when there is no tariff?

d.

A

tariff of 20% is imposed on imports of good X.

Mark the new equilibrium on the graph as point B. Calculate the equilibrium quantity, consumer price

and producer price after the tariff.

(Hint: We can analyze this by âshiftingâ the supply curve to P=1.20*(10+X). It is OK to get fractions of units.)

e.

What

is the consumer surplus with the 20% tariff?

What is the tariff revenue?

[Hint: Start with the producer price you got in c. Multiply by .05 to get the tax per unit. Multiply by the number of units to get the revenue.] Add these together to get total welfare for

the home country. Has welfare gone up

for H due to the tariff?

f.

Now

suppose the tariff is 100%. As in part

d, mark the new equilibrium on the graph as point C. Calculate the equilibrium quantity, consumer

price and producer price after the tariff.

g.

What

is the consumer surplus with the 100% tariff?

What is the tariff revenue? Add these together to get total welfare for

the home country. Has welfare gone up

for H due to the tariff?

h.

At

point A, what is the price elasticity of supply?

i.

Given

your answer for h, what is the âoptimalâ tax rate? That is, apply the inverse elasticity rule

from the end of lesson 9 to the original equilibrium. [Technical note. Applying the inverse elasticity rule as I

want you to do here with the original equilibrium will get us close to the

âoptimal.â But it is not exact. The inverse elasticity technically is the

optimal rate to charge at the optimal

post-tax equilibrium!! But actually

solving for what that is non-trivial (remember, the elasticity of supply is changing

along the supply curve). In this

problem, it is .60, but that should not be your solution to this question.]

j.

Calculate

the consumer surplus, tariff revenue and total surplus to H at the tax rate you

calculated in i.

3. (20

points) Refer to the following graph for the Home country

before and after a tariff. The home

producer of the good is a monopolist prior to trade.

.png”>

a. Under free trade (prior to

the tariff), the home country produces ________ and imports ________.

b. The consumer surplus prior to

the tariff is:

c. According to the graph, the

home country imposed a tariff of _____ dollars per unit, and the new quantity

of imports is _____.

d. After the tariff, what is the

decrease in consumer surplus?

e. After the imposition of the

tariff, the home monopolist saw an increase in production of ______ and the

producer surplus increased by ________.

f. The home government collects

______ in tariff revenue.

g. The deadweight loss due to the tariff is:

**CLICK HERE TO ORDER A SIMILAR PAPER**

We pride ourselves in writing quality essaysCLICK HERE TO CONTACT US