Assume South Park is initially closed to trade. Domestic supply and demand for winter hats is given by the following equations: D = 60 - 4P, S = 2P - 6.

a. Suppose South Park opens up to trade and the world price for winter hats is $6. What happens to domestic production and consumption? What is the quantity imported? (5 points)

b. Suppose the mayor of South Park imposes a $3 tariff on winter hat imports. What effect does the tariff have on the welfare of consumers, producers and the government in South Park? What is the net welfare effect of the tariff? (5 points)

Answer rating: 100% (QA)

a When South Park opens up to trade and the world price for winter hats is 6 we can determine the effects on domestic production consumption and the q... View the full answer