3) GOVERNMENT INTERVENTIONS AND DEAD WEIGHT LOSS Consider a small open economy .Suppose the market for...
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3) GOVERNMENT INTERVENTIONS AND DEAD WEIGHT LOSS Consider a small open economy .Suppose the market for corn in Banana Republic is competitive. The domestic market demand function for corn is Q^ d= 20-P and the domestic market supply function Q^s = P-4 both measured in billions of bushels per year. Also assume the import supply curve is infinitely elastic at a price of $4 per bushel. (a) In the per perfectly competitive market, calculate the consumers' totally willingness to pay and show it on the graph. (b) Now suppose the government imposes a tariff of $1 per bushel. Calculate the CS, PS and DWL and show them graphically. (c) Instead of tariff, suppose the government imposes an import quota of 6 billion bushels. Calculate the CS, PS and DWL, and show them graphically. (d) Now suppose instead of a single policy, the government uses a policy combination by imposes a tariff of $1 per bushel and an import quota of 6 billion bushes at the same time. Calculate the new equilibrium price and show it on a graph. 3) GOVERNMENT INTERVENTIONS AND DEAD WEIGHT LOSS Consider a small open economy .Suppose the market for corn in Banana Republic is competitive. The domestic market demand function for corn is Q^ d= 20-P and the domestic market supply function Q^s = P-4 both measured in billions of bushels per year. Also assume the import supply curve is infinitely elastic at a price of $4 per bushel. (a) In the per perfectly competitive market, calculate the consumers' totally willingness to pay and show it on the graph. (b) Now suppose the government imposes a tariff of $1 per bushel. Calculate the CS, PS and DWL and show them graphically. (c) Instead of tariff, suppose the government imposes an import quota of 6 billion bushels. Calculate the CS, PS and DWL, and show them graphically. (d) Now suppose instead of a single policy, the government uses a policy combination by imposes a tariff of $1 per bushel and an import quota of 6 billion bushes at the same time. Calculate the new equilibrium price and show it on a graph.
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