Imagine a market with demand and supply as follows: D: p=10-q and S: p=q. 1. Find the equilibrium price, quantity, producer and consumer surplus, and total welfare 2. Now suppose there is a world price of $1 for the good. Which party (consumers or producers) would refuse to transact at the autarky price? Describe the new equilibrium in terms of: I. Consumer and producer surplus and welfare II. Imports 3. Now suppose a $1 tariff is introduced, making the local price $2. You may assume for now the imposition of a tariff does not change the world price. Compare welfare (including the government tariff revenue) I. With the situation before the tariff II. With the situation in autarky
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Imagine a market with
1. Find the
2. Now suppose there is a world price of $1 for the good. Which party (consumers or producers) would refuse to transact at the autarky price? Describe the new equilibrium in terms of:
I.
II. Imports
3. Now suppose a $1 tariff is introduced, making the local price $2. You may assume for now the imposition of a tariff does not change the world price. Compare welfare (including the government tariff revenue)
I. With the situation before the tariff
II. With the situation in autarky
4. Suppose this country is the only country in the world that demands this good. Derive a world demand for the good over the range from Price = 0 to Price = autarky Price. (hint: The world demand is the demand for imports to this country.)
5. Go back to the situation before the tariff was introduced. Now suppose the world supply curve is pworld = qworld/8. Draw the world market for this good, the equilibrium world price & explain the impact on world demand of a levying of a tariff of 1?
6. Redo your welfare analysis in Q3. Is this tariff optimal?
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