Question
Compulsory question. Please make use of both algebraanddiagramsinordertoillustrateyouranswers. ConsiderthemarketofTimTamsinAustralia(asmallcountry).TheworldpriceofTimTams is$5. The quantity demanded in Australia is q d = 40 2 p The domestic supply
Compulsory question. Please make use of both algebraanddiagramsinordertoillustrateyouranswers.
ConsiderthemarketofTimTamsinAustralia(asmallcountry).TheworldpriceofTimTams is$5.
The quantity demanded in Australia is qd= 40 2p
The domestic supply is qs=2p where p is the price of Tim Tams
(a)i)CalculatetheAustraliantheequilibriumprice,quantity,consumersurplusandproducer surplus under autarky (no trade). (1mark)
ii)SupposethatafterBrexit,AustraliaremovesabanoninternationaltradeofTimTams madeintheUK(therestoftheworld).Withtheaidofawell-labelleddiagram,calculate thenewequilibriumprice,thequantityconsumedandthequantitysuppliedbydomestic producers. (2marks)
iii)Calculate the change in consumer surplus and producer surplus from i) to ii). Is the original ban of international trade in Tim Tams efficient? Why or why not? (2marks)
(b)After the Australian government has removed the ban on international trade, it then implements an import tax (tariff) of $2. Again, with the help of a well-labelleddiagram,
(i)calculate the new quantity demanded, quantity supplied domestically,and
(ii)the new consumer surplus, producer surplus and government revenue following the imposition of the tariff. (3marks)
(c)The government, instead of the import tax, considers implementing a $2 per unit pro- duction subsidy for domestic producers. What are the new consumer, producer surplus, and the cost of the subsidy to the government? (3marks)
(d)You are hired as an economic consultant by the Australian government. What is your rankingofthethreealternativepoliciesoutlineinpartsa)ii,b,andc(thatisfreetrade, a tariff and a production subsidy)? Why? (2marks)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started