A small country can import a good at a world price of 10 per unit. The domestic supply and demand curves are:

S = 50 + 5P

D = 400 - 10P

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 subsidy be?