Home's demand curve for wheat is D = 10. - 20P and Its supply curve is S = 20 + 20P. Foreign's demand curve for wheat is D* = 80 – 20P and its supply curve is S* = 40 4. 20P

a) Derive and graph Home's import demand schedule. What would the price of wheat be in the absence of trade?

b) Derive and graph Foreign's export supply curve and find the price of wheat that would prevail in Foreign in the absence of trade.

c) Now allow Foreign and Home to trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price? What is the volume of trade?

Now assume that home imposes a specific tariff of 0.5 on wheat imports.

d) Determine and graph the effects of the tariff on the following: (1) the price of wheat in each country; (2) the quantity of wheat supplied and demanded in each country. (3) the volume of trade.

e) Determine the effect of the tariff on the welfare of the following groups: (1) Home import-competing producers (producer surplus); (2) Home consumers (consumer surplus): (3) the government revenue change.

f) Show graphically and calculate the terms of trade gain, the efficiency loss, and the total effect on welfare of the tariff.

Answer rating: 100% (QA)

a Homes demand curve for wheat is D 100 20P Supply curve is S 20 20P Import demand IMP DP SP 80 40P ... View the full answer