Suppose that the domestic demand and supply for shoes in a small open economy are given by

P = 80 - 4Q(demand)

P = 9 + Q(supply)

where P denotes price and Q denotes quantity.

a. What are the autarky price of shoes and quantity produced?

b. What are the levels of domestic production, consumption, and imports if the world price is $10?

c. How would your ANSWERs in part (b) change if this country were to impose a tariff of $3?

d.Suppose that the world price is $50.

1. What will be the levels of production and consumption under free trade?

2. Will the country be an exporter or an importer if the world price is $50? How much will it want to trade?

3. Suppose that the local government imposes a tax of $5 per unit of the quantity traded of this product. What willhappen to production, consumption, and trade levels of this product?

4. What will be the welfare costs of this policy?