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3. Welfare effects of protection in a small country Suppose the domestic demand and supply of handbags in a stool! open economy are given by:

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3. Welfare effects of protection in a small country Suppose the domestic demand and supply of handbags in a stool! open economy are given by: QD=70-P: Q5=-5O+2P The domestic supply and demand curves are shown in the diagram below. In autarky, the country produces 30 handbags at a price of $40 each. (a) Suppose the world price is equal to $32 per handbag. What are the free trade levels of : - Domestic consumption? 0 Domestic production? - Imports? (b) Suppose now that the country imposes a tariff of $6 per handbag imported. Using the equations and/or the graph below, calculate the effects of this tariff on the following (record numbers in the spaces provided). When calculating changes in surplus, be sure to indicate whether the change is Positive (gain) or negative (loss)

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