Assume the world price is pW- $5 and the country imposed a tariff of $4. 1. With the new tariff, home consumers need to pay $ I Select ] | for the goods, foreign exporters receive $ | Select) from selling the goods and paying tariff. 2. Based on the graph, the country's terms of trade gains from tariff e will be [ Select ] | the deadweight loss (b + d). Hence, with this import tariff, the total welfare of the country will I Select )
Assume the world price is pW- $5 and the country imposed a tariff of $4. 1. With the new tariff, home consumers need to pay $ I Select ] | for the goods, foreign exporters receive $ | Select) from selling the goods and paying tariff. 2. Based on the graph, the country's terms of trade gains from tariff e will be [ Select ] | the deadweight loss (b + d). Hence, with this import tariff, the total welfare of the country will I Select )
Chapter12: The Partial Equilibrium Competitive Model
Section: Chapter Questions
Problem 12.8P
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Transcribed Image Text:Welfare Effect of Tariff (for large importing country)
Suppose Home is a large country whose supply and demand curves are given by the left of the following figure:
Domestic Market
International Market
Price
Price
15
X* + t
8
8
7
5
3
M
1
4 67 8 10 Quantity
Import
6
Assume the world price is pW = $5 and the country imposed a tariff of $4.
1. With the new tariff, home consumers need to pay $ I Select J
for the goods, foreign exporters receive $
[ Select )
from selling the goods and paying tariff.
2. Based on the graph, the country's terms of trade gains from tariff e will be Select )
the deadweight loss (b + d). Hence, with
this import tariff, the total welfare of the country will Select J
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