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Germany has the following demand for garden gnomes: P =200Q and the following domestic supply of garden gnomes: P=50+Q. Assume Germany is autarkic (it does
Germany has the following demand for garden gnomes: P =200Q and the following domestic supply of garden gnomes: P=50+Q. Assume Germany is autarkic (it does not trade with any nation), graph the demand and supply functions and determine the equilibrium price and quantity. Determine the amount of consumer surplus, producer surplus, and gains to trade. Assume Germany can import similar garden gnomes from Poland at a freetrade price of $50. What is domestic quantity supplied? Domestic quantity demanded? The amount of imports? (Assume Germany is a "small" nation). Germany applies a \$50/gnome tariff on Polish made gnomes. What is domestic quantity supplied? Domestic quantity demanded? The amount of imports? Calculate the loss of consumer surplus as a result of the tariff. Imagine that the United States buys all of its coffee from other nations (IOW, US domestic production of coffee is zero). Draw a graph showing how much it will import and how much it will consume if it can trade freely with other nations (assume the world supply curve of coffee is perfectly elastic). Next, on your graph, assume a tariff is imposed on foreign coffee and the tariff is large enough to make US imports of coffee equal to zero. Show what happens to US domestic production of coffee and US consumption of coffee. On your graph show the area of deadweight loss. Show the area of wasted resources
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