A small country can import a good at a world price of 5 per unit. The domestic

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A small country can import a good at a world price of 5 per unit. The domestic supply curve of the good is S = 10 + 10P.

The demand curve is D = 600 - 5P.

In addition, each unit of production yields a marginal social benefit of 15.

a. Calculate the total effect on welfare of a tariff of 10 per unit levied on imports.

b. Calculate the total effect of a production subsidy of 10 per unit.

c. Why does the production subsidy produce a greater gain in welfare than the tariff ?

d. What would the optimal production subsidy be?

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International Economics Theory And Policy

ISBN: 9781292409719

12th Edition

Authors: Paul Krugman , Maurice Obstfeld, Marc Melitz

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Question Posted: Feb 27, 2024 03:04 AM

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A small country can import a good at a world price of 5 per unit. The domestic

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Step by Step Answer:

a To calculate the total effect on welfare of a tariff of 10 per unit levied on imports we need to consider the changes in consumer surplus producer surplus and government revenue Consumer Surplus Con...View the full answer

International Economics Theory And Policy

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