Home's demand curve for wheat is P = 10 -- 20 D. Its supply curve is P = 4 + Qs. Home's quantity demanded of wheat is QD = 200 - 20 P. Home's quantity supplied of wheat is QD = - 80 + 20 P. Home's import demand schedule is M = QD - Qs = 280 - 40 P or P = 7 - 40 The Home price of wheat in the abscence of trade would be PA = 7. Foreign's demand curve for wheat is P* = 8- 20 Qp . Its supply curve is P' =2+ 20Qs Foreign's quantity demanded of wheat is QD = 160 - 20 P. Foreign's quantity supplied of wheat is QD = - 40 + 20 P. Foreigns export supply schedule is X" =Q -Q = -200 + 40 Por P = 5 + 1 40 Q X . The Foreign price of wheat in the abscence of trade would be PA. = 5. Now allow Foreign and Home to trade with each other, at zero transportation cost. What is the world price under free trade? P = 6. What is the volume of home imports? M = 40 . What is the quantity demanded and quantity supplied in the home country under free trade? D, = 80, S1 = 40 . Home imposes a specific tariff of T = 1 on wheat imports. Home's tariff-ridden import demand curve, the import demand curve stated in terms of the Foreign tariff-ridden price, is M' = - PT+ or PT. = ]- ]@MT. The Foreign price with the tariff is P * =. The home price with the tariff is PT =. The quantity demanded and quantity supplied in the Home country with the tariff are D2 = |and S2 =]. The volume of home country imports with the tariff is My = . Determine the effect of the tariff on Determine the net effects of the tariff: Home import-competing producers Terms of trade gain APS = e = Consumption distortion Home consumers d =[ ACS = Production distortion Home government tariff revenue b = AGR = Efficiency loss b + d=] Adding these effects together The net effect of the tariff on welfare for the Home country is AW = APS + ACS + AGR = e - (b + d) =