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A small country has the following demand and supply curves for a good that can be imported at a world price of 10 per unit:
A small country has the following demand and supply curves for a good that can be imported at a world price of 10 per unit:
Demand:D= 500 - 8P
Supply:S= 50 + 20P
Suppose that each unit of production yields a marginal social benefit of 10.
a.Calculate the total effect on the welfare of a tariff of 5 per unit levied on imports.
b.Calculate the total effect on the welfare of a production subsidy of 5 per unit.)
c.Why does the production subsidy produce a greater gain in welfare than the tariff?
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