Ta riff on Imported Good E. a. Suppose the country Home has the foilowing demand and supply functions for a good 3: [you may assume the price p will be such that neither supply nor demand are negative}: Home Supply: Q = so + 333 Home Demnd: Q3 = 30 2;: Home production of the good is not enough to satisfy the Home demand, so Horne also imports good it from Foreign. Dene Home*s import demand for good it, IM, as Import Demand: [M = 0}} - 0f; Write the import demand equation lid in terms of the price. 11} lo. Suppose the country Foreign has the following demand and supply functions for the good it {you may assume the price p will be such that neither supply nor demand are negative]: Foreign Supply: Q3 = 40 + 1039 Foreign Demand: Q? = ll 10p Dene Foreign's export supply of good it, EX, as Export Supply: EX = Q}; 0'? Write the export supply equation EX in terms of the price. 11} c. Find the price such that Home's demand for imports of'good [equals Foreign's export supply of good 3:. Denote this price as p"'f [world price]. [2} d. Since this is a competitive market. the Home producers of good )r also charge p'" for good it. Find the amount ofgood it that Home produces and the amount that Home consumes at price p". :2] Now the Home government decides to impose a per unit tariff on the imports of good i: from Foreign of $1.25 per unit of imported good 1:. A tariff is simply a tax on the imports of the good Home producers of good it do not have a tariff on their goods. Like a tax, this means the price the Home consumers pay for the imported good with the tariff [call it if} is not the price the Foreign producers get for exporting it to Home {call it pi] the difference being the tariff. Find pT and pF such that Home's demand for imports of good 2:: equals Foreign's export supply of good it and determine the burden of the tariff on the Home consumers and the Foreign producers. [6] f. Since this is a competitive market, the Home producers of good it also charge pror good x. Find the amount of good it that Home produces and the amount that Home conSumes at price pT. [2] g. Comparing the outcome with the tariff to the outcome with no tariff, evaluate the welfare effects of the tariff on the Home nation; namely: [3] r. Use Consumer Surplus to find how much the Home consumers are better or worse offfrom the tariff. Use Producer Surplus to find how much the Home producers are better or worse off from the tariff. iii. Find how much the Home nation's Social Benefit changed ie how much the Home nation overall is better or worse off from the tariff. u
