1. Find out consumer surplus and producer surplus of the Home country in autarky. (3pts)

2. Derive the import demand function of the Home country and the export supply function of the Foreign country. Solve for the equilibrium price of computers in the world market. (3pts)

3. What are the total gains from trade in terms of total social welfare, when t = 0? (3pts) Now the home country imposes an import tariff t =

4: for every computer imported into the Home market, the foreign firm needs to pay $4 to the Home government. 4. Find the new equilibrium price in the Home market after the tariff is imposed. (3pts)

5. How large is the deadweight loss associated with the tariff? How large is the terms of trade gain? Will the total social welfare in the Home country be higher after the tariff? (4pts)

6. Find out the optimal tariff that maximizes the total social welfare of the Home country. (3pts)

7. Suppose that the Home government has imposed an optimal tariff t ∗ . How will the total social welfare of the Foreign country be affected? If you have computed the optimal tariff in the previous part, use the value that you have computed. If not, you can express the change in social welfare as functions of t ∗ . (3pts)

8. How will the total social welfare of the entire world (Home + Foreign) be affected by t ∗ ? (3pts)