Consider the market for shoes in country A. Demand is assumed to be 100 - p where
Question:
Consider the market for shoes in country A. Demand is assumed to be 100 - p where p is the final consumer price. Suppose that country A does not produce shoes and that there are two importers B and C. The export prices for shoes in both countries are PB = 59.99 and PC, respectively. Furthermore suppose that country A is a small country so that its demand does not influence export prices. Suppose that, initially, country A levies a uniform import tariff of t = 10 on each pair of imported shoes.
Assume pC = 45. What is the effect on demand and welfare in country A if country A signs a free trade agreement with country B?
Assume pC = 50. What is now the effect on demand and welfare in country A if country A signs a free trade agreement with country B?
Step by Step Answer:
In the absence of a freetrade agreement with country B the consumers in count...View the full answer
Industrial Organization Markets and Strategies
ISBN: 978-1107069978
2nd edition
Authors: Paul Belleflamme, Martin Peitz
