Problem 1: Consider three hypothetical countries, Toluca Lake (T), Shepherd's Glen (S), and Brahms (B). You are the ruler of Brahms, and as such, you have to decide the trade policy in your country. Your domestic consumers have market demand P=80Q and your domestic producers have market supply P=40+Q. Brahms is a small country, facing PT=18 and PS=15 from Toluca Lake and Shepherd's Glen, respectively. Consider the following scenarios. 1.1. Suppose Brahms is autarkic, but is considering opening up to trade. Brahm's import demand curve will be P=Q. What are and ? 1.2. Suppose Brahms is autarkic, but is considering opening up to trade. Calculate Brahms' change in welfare if, instead, it opened to free trade. 1.3. Suppose Brahms is not autarkic, but has a 40% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Toluca Lake. 1.4. Suppose Brahms is not autarkic, but has a 25% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Toluca Lake. 1.5. Suppose Brahms is not autarkic, but has a 25% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Shepherd's Glen. 1.6. Which situation is Brahms best off under? A A 40% tariff on imports B A 25% tariff on imports, free trade with Shepherd's Glen C A 25% tariff on imports, free trade with Toluca Lake 1.7. Which situation is Brahms best off under? A A 15% tariff on imports, free trade with Toluca Lake B A 15% tariff on imports, free trade with Shepherd's Glen C A 25% tariff on imports, free trade with Toluca Lake Problem 1: Consider three hypothetical countries, Toluca Lake (T), Shepherd's Glen (S), and Brahms (B). You are the ruler of Brahms, and as such, you have to decide the trade policy in your country. Your domestic consumers have market demand P=80Q and your domestic producers have market supply P=40+Q. Brahms is a small country, facing PT=18 and PS=15 from Toluca Lake and Shepherd's Glen, respectively. Consider the following scenarios. 1.1. Suppose Brahms is autarkic, but is considering opening up to trade. Brahm's import demand curve will be P=Q. What are and ? 1.2. Suppose Brahms is autarkic, but is considering opening up to trade. Calculate Brahms' change in welfare if, instead, it opened to free trade. 1.3. Suppose Brahms is not autarkic, but has a 40% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Toluca Lake. 1.4. Suppose Brahms is not autarkic, but has a 25% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Toluca Lake. 1.5. Suppose Brahms is not autarkic, but has a 25% tariff on imports. Calculate Brahms' change in welfare if, instead, it traded freely with Shepherd's Glen. 1.6. Which situation is Brahms best off under? A A 40% tariff on imports B A 25% tariff on imports, free trade with Shepherd's Glen C A 25% tariff on imports, free trade with Toluca Lake 1.7. Which situation is Brahms best off under? A A 15% tariff on imports, free trade with Toluca Lake B A 15% tariff on imports, free trade with Shepherd's Glen C A 25% tariff on imports, free trade with Toluca Lake
