3. A small country can import a good at a world price of 10 per unit. The...

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3. A small country can import a good at a world price of 10 per unit. The domestic supply curve of the good is S = 20 + 10P The demand curve is D = 400 - 5P In addition, each unit of production yields a marginal social benefit of 10.

a. Calculate the total effect on welfare of a tariff of 5 per unit levied on imports.

b. Calculate the total effect of a production subsidy of 5 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 Finance Theory And Policy

ISBN: 9781292019550

10th Edition

Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz

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Question Posted: Oct 02, 2024 07:03 AM

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3. A small country can import a good at a world price of 10 per unit. The...

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International Finance Theory And Policy

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