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Consider a country with tariff and the equilibrium points given in the figure below. image1.jpg a) Suppose that the country decides to increase its tariff

Consider a country with tariff and the equilibrium points given in the figure below.

image1.jpg

a) Suppose that the country decides to increase its tariff from t' to t. Calculate the gains or losses to domestic consumer surplus due to the increase in tariff? Are there gains or losses to domestic producer surplus due to the increase in tariff? How is government revenue affected by the policy change? answers in the form of alphabets denoted in the figure. (2pts)

b) What is the overall gain or loss in welfare due to the policy change? (2pts)

c) Is the country represented in the figure a small country or a large country? Explain how you came to your conclusion. What changes would you see in the figure above in the alternative case and why? (4 pts)

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