Home's demand curve for wheat is P = 10-7Qp. Its supply curve is P = 4 + : Qs 20 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 - 1 QM 1 The Home price of wheat in the abscence of trade would be PA = 7. Foreign's demand curve for wheat is P' =8 - ? Qp . Its supply curve is P* =2+ 20@s. Foreign's quantity demanded of wheat is QD = 160 - 20 P. Foreign's quantity supplied of wheat is QD = - 40 + 20 P. 2 Foreigns export supply schedule is X" = Q -Q = -200 + 40 P or P = 5 + 1 40 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 3 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. = ]- 2MT. The Foreign price with the tariff is P . =. 4 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 = 5 e = Consumption distortion Home consumers d =] 6 ACS = Production distortion Home government tariff revenue b =_ AGR = Efficiency loss b + d = _ Adding these effects together AW = APS + ACS + AGR = The net effect of the tariff on welfare for the Home country is e - (b + d) =