Question
Home demand and supply curve: D=50-10P S=10+10P. Foreign demand and supply curve: D* = 40 - 10P S* = 20 + 10P. Home imposes a
Home demand and supply curve:
D=50-10P S=10+10P. Foreign demand and supply curve:
D* = 40 - 10P S* = 20 + 10P. Home imposes a specific tariff of 0.5 on books imports. a. Determine and graph the effects of the tariff on the following: (1) the price of books in each country; (2) the quantity of books supplied and demanded in each country; (3) the volume of trade. b. Determine the effect of the tariff on the welfare of each of the following groups: (1) Home import-competing producers; (2) Home consumers; (3) the Home government. c. Show graphically and calculate the terms of trade gain, the efficiency loss and the total effect on welfare of the tariff.
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