Suppose Foreign had been a much smaller country with domestic demand.

D* = 8 - 2P, S* = 4 + 2P.

(Notice that this implies the Foreign price of books in the absence of trade would have been the same as in Problem 2).

Recalculate the free trade equilibrium and the effects of a 1.5 specific tariff by Home.

Relate the difference in results to the discussion of the small-country case in the text.

 LO.1