Homework Assignment # 3
International Trade
Due Date: Wednesday, November 6, 2019
1. Small Country Tariff Analysis for Two Different Goods. Study the diagrams on the
next page, which show the home country’s markets f
...
Homework Assignment # 3
International Trade
Due Date: Wednesday, November 6, 2019
1. Small Country Tariff Analysis for Two Different Goods. Study the diagrams on the
next page, which show the home country’s markets for chemicals and cell phones in free
trade. Suppose the world price of each good is FIXED at 2.
1. A. Find the following values under a specific tariff of 1 for each good (warning: noninteger values may occur):
i) Domestic price, quantity produced, quantity consumed and level of imports.
ii) The changes in producer surplus, consumer surplus, tariff revenue and welfare.
iii) Is the effect of the tariff on welfare for cell phones larger than, smaller than, or the
same as, that of chemicals? Explain why.
1.B. Find the following values under a specific tariff of 2 for chemicals only (warning:
non-integer values may occur):
i) Domestic price, quantity produced, quantity consumed and level of imports.
ii) The changes in producer surplus, consumer surplus, tariff revenue and welfare.
iii) Is the welfare loss for chemicals under a tariff of 2 more than double, or less than
double, the welfare loss under a tariff of 1? Explain why.
2. Large Country Tariff Analysis for Two Different Goods. Next suppose that the
imposition of a tariff of 1 causes the world price to fall to 1.5. Using the same diagrams,
find the following values under a specific tariff of 1 for each good (warning: non-integer
values may occur):
i) Domestic price, quantity produced, quantity consumed and level of imports in
each market.
ii) The changes in producer surplus, consumer surplus, tariff revenue and welfare in
each market.
iii) For which product would the home country gain more welfare under a tariff of 1?
iv) For which product would consumers/voters be more upset under a tariff of 1?
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