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Given: Under free trade; a small country imports cars. The price of a car is $50,000.00. A. Suppose the country levies a tariff of $1000.00
Given: Under free trade; a small country imports cars. The price of a car is $50,000.00. A. Suppose the country levies a tariff of $1000.00 per car. Show the effects of this change in a diagram. Give all welfare effects. Is the country better off or worse off under restricted trade? B. Is it better for the country to use an import tariff or an import quota, if the idea is to protect the domestic car industry? Explain clearly (no need to give numerical answers in part b.)
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