Part I. Welfare Effect of Tariff (Large Importing Country) Suppose Home is a large country whose...

 

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Part I. Welfare Effect of Tariff (Large Importing Country) Suppose Home is a large country whose supply and demand curves are given by the left of the following figure. Price 16 8753 1 Domestic Market bi I S Price 8 International Market X*+t A 8 M 4 6 7 8 12 Quantity 2 Import a. Assume the world price is P" = $5. Determine the consumer and producer surplus under free trade. b. Suppose the government at Home government imposes a tariff in the amount of $4 (i. e., t = $4). What is the new Home price? What is the price received by the foreign exporters? What are new consumer and producer surplus under the tariff? c. Determine the terms of trade for Home with the tariff. Does Home welfare increase or decrease due to the tariff? Explain. d. At what amount would the tariff be considered prohibitive? Explain Part I. Welfare Effect of Tariff (Large Importing Country) Suppose Home is a large country whose supply and demand curves are given by the left of the following figure. Price 16 8753 1 Domestic Market bi I S Price 8 International Market X*+t A 8 M 4 6 7 8 12 Quantity 2 Import a. Assume the world price is P" = $5. Determine the consumer and producer surplus under free trade. b. Suppose the government at Home government imposes a tariff in the amount of $4 (i. e., t = $4). What is the new Home price? What is the price received by the foreign exporters? What are new consumer and producer surplus under the tariff? c. Determine the terms of trade for Home with the tariff. Does Home welfare increase or decrease due to the tariff? Explain. d. At what amount would the tariff be considered prohibitive? Explain

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