Question
In a closed economy, the domestic market for a product is a perfectly competitive industry with supply curve=20+0.1and demand curve=1200.1whereis price andis quantity. Plot all
In a closed economy, the domestic market for a product is a perfectly competitive industry with supply curve=20+0.1and demand curve=1200.1whereis price andis quantity. Plot all your results in a graph below.
(a)Calculate the price, quantity, consumer surplus, and producer surplus in the domestic (autarky) equilibrium.
(b)Assume the world price of this product is$40when this economy opens up for free trade. Explain how to determine and find the free trade equilibrium. Calculate the imports or exports. How much consumers and producers gain or lose in the free trade equilibrium.
(c)Suppose the government now imposes a$10per unit tariff on this product. Calculate the imports or exports with tariff. How much consumers, producers, and government gain or lose with tariff when compared to free trade. Explain why tariff makes the society worse off when compared to free trade.
(d)Can the government improve the outcomes in part (c) by replacing the tariff with an import quota set equal to the imports under tariff?
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