In a small country, the domestic supply curve of a good is S = 50 + 5P. The domestic demand curve is D = 400 – 10P. a. C
Posted: Wed Apr 27, 2022 1:11 pm
In a small country, the domestic supply curve of a good is S =
50 + 5P. The domestic demand curve is D = 400 – 10P.
a. Calculate the small country's autarky price of the good.
b. The world price of the good is 10 per unit. Is the small
country an exporter or an importer of the good?
c. With free trade, what is domestic quantity produced and
consumed?
d. If a tariff of 5 per unit is imposed, what is domestic price
with tariff? Calculate domestic quantity produced and consumed with
tariff. What is the change in domestic quantity produced compared
to (c)?
e. Suppose each unit of production yields a marginal social
benefit of 10. Calculate the gain in social benefit when a tariff
of 5 is imposed.
f. Is the tariff a "first best" policy correcting for market
failure in (e)? If not, can you think of a better policy?
50 + 5P. The domestic demand curve is D = 400 – 10P.
a. Calculate the small country's autarky price of the good.
b. The world price of the good is 10 per unit. Is the small
country an exporter or an importer of the good?
c. With free trade, what is domestic quantity produced and
consumed?
d. If a tariff of 5 per unit is imposed, what is domestic price
with tariff? Calculate domestic quantity produced and consumed with
tariff. What is the change in domestic quantity produced compared
to (c)?
e. Suppose each unit of production yields a marginal social
benefit of 10. Calculate the gain in social benefit when a tariff
of 5 is imposed.
f. Is the tariff a "first best" policy correcting for market
failure in (e)? If not, can you think of a better policy?