Aoslia is a small country that takes the world price of corn as given. Its domestic supply and demand for corn is given by the following: D = 45 - 3P S = 3P – 9.

a. Assume initially that Aoslia does not open to trade. What is the autarky equilibrium price and quantity?

b. Suppose Aoslia decides to engage in trade. Determine the quantity demanded, quantity supplied, and import given the world price of $6 per bushel of corn.

c. If the Aoslia government imposes a tariff in the amount of $1, what is the new domestic price? What is the amount imported?

d. Determine the effect of the tariff on the Aoslian consumers, producers, and government.

e. Calculate the terms-of-trade gain. What is the net effect of the tariff on Aoslia’s welfare? Explain.

Answer rating: 100% (QA)

a In autarky QSQD 453P3P9 4593P3P 546P P546 9 Q4539 18 b When the free trade i... View the full answer