Suppose a big country with a good's demand described by P = 96 - 4Q and a good's supply described by P= 24 + 2Q implements a $12 tariff, which ultimately decreases the world price from $32 to $28. (a) Calculate the total surplus under each scenario: no trade, free trade, and protected trade. (b) Calculate the terms-of-trade gain that is created by the tariff. (c) Calculate the total surplus if this is a small country instead of a big country under the same market and tariff as above (government charging the same amount per unit imported).

Suppose a big country with a good's demand described by P = 96 - 4Q and a good's supply described by P= 24 + 2Q implements a $12 tariff, which ultimately decreases the world price from $32 to $28. (a) Calculate the total surplus under each scenario: no trade, free trade, and protected trade. (b) Calculate the terms-of-trade gain that is created by the tariff. (c) Calculate the total surplus if this is a small country instead of a big country under the same market and tariff as above (government charging the same amount per unit imported).

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 6CQQ

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