Suppose Home is a small country. Use the graphs below to answer the questions. a. Calculate Home
Question:
a. Calculate Home consumer surplus and producer surplus in the absence of trade.
b. Now suppose that Home engages in trade and faces the world price, P* = $6. Determine the consumer and producer surplus under free trade. Does Home benefit from trade? Explain.
c. Concerned about the welfare of the local producers, the Home government imposes a tariff in the amount of $2 (i.e., t 5 $2). Determine the net effect of the tariff on the Home economy.
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Related Book For
International Economics
ISBN: 978-1429278447
3rd edition
Authors: Robert C. Feenstra, Alan M. Taylor
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