QUESTION 9 Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from f
Posted: Thu Apr 28, 2022 11:33 am
QUESTION 9
Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from
foreign country. The import demand curve for good Y in home country is given by: MD = 170 – 2PY and the
export supply curve for good Y in Foreign country is given by: EX = PY – 40.
Part A. What is the free trade price of good Y? Show your work. (2 marks)
Part B. How many units of good Y are traded under free trade? Show your work. (2 marks)
Part C. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the price of good
Y that Foreign exporters receive? Show your work. (2 marks)
Part D. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the price of good
Y that Home consumers pay? Show your work. (2 marks)
Part E. If home country imposes a specific tariff of $15 per unit of good Y imported, how many units of good
Y are traded now? Show your work. (2 marks)
Part F. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the tariff
revenue? Show your work. (2 marks)
Part G. Assume that instead of a specific tariff, an import quota will be used on good Y. What is the amount
of the quota that will have identical effects (in terms of amount of good Y imports and the domestic
price of good Y) as the specific tariff of $15? Explain your reasoning. (2 marks)
Part H. Consider the use of import tariff vs. import quota in Home country that will result in the same amount
of good Y imports and the domestic price of good Y. If quota rents are given to Foreign country,
which policy, i.e., import tariff vs. import quota, is preferable by Home country on the basis of its
effect on social welfare? Explain your reasoning.
QUESTION 10
Consider a single country and a single good. The demand curve for this good is given by QD = 144 - 4P. There
are two firms serving the market: Firm A and Firm B, where Firm A has a marginal cost of $20 and Firm B has
a marginal cost of $16. There are no fixed costs incurred by either firm.
Assume that these firms compete in Cournot fashion.
Part I. How many units of output each firm produces? Show your work. (2 marks)
Part II. What is the equilibrium price in the market? Show your work. (2 marks)
Part III. How much profit each firm makes? Show your work. (2 marks)
Part IV. What is the consumer surplus? Show your work. (2 marks)
Alternatively, assume now that these firms compete in Bertrand fashion.
Part V. What is the equilibrium price in the market now? Explain your reasoning. (2 marks)
Part VI. How many units of output each firm produces? Show your work. (2 marks)
Part VII. How much profit each firm makes now? Show your work. (2 marks)
Part VIII. What is the consumer surplus? Show your work. (2 marks)
Part IX. Under which competition, Cournot vs. Bertrand, social welfare is higher? Show your work.
(2 marks)
Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from
foreign country. The import demand curve for good Y in home country is given by: MD = 170 – 2PY and the
export supply curve for good Y in Foreign country is given by: EX = PY – 40.
Part A. What is the free trade price of good Y? Show your work. (2 marks)
Part B. How many units of good Y are traded under free trade? Show your work. (2 marks)
Part C. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the price of good
Y that Foreign exporters receive? Show your work. (2 marks)
Part D. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the price of good
Y that Home consumers pay? Show your work. (2 marks)
Part E. If home country imposes a specific tariff of $15 per unit of good Y imported, how many units of good
Y are traded now? Show your work. (2 marks)
Part F. If home country imposes a specific tariff of $15 per unit of good Y imported, what is the tariff
revenue? Show your work. (2 marks)
Part G. Assume that instead of a specific tariff, an import quota will be used on good Y. What is the amount
of the quota that will have identical effects (in terms of amount of good Y imports and the domestic
price of good Y) as the specific tariff of $15? Explain your reasoning. (2 marks)
Part H. Consider the use of import tariff vs. import quota in Home country that will result in the same amount
of good Y imports and the domestic price of good Y. If quota rents are given to Foreign country,
which policy, i.e., import tariff vs. import quota, is preferable by Home country on the basis of its
effect on social welfare? Explain your reasoning.
QUESTION 10
Consider a single country and a single good. The demand curve for this good is given by QD = 144 - 4P. There
are two firms serving the market: Firm A and Firm B, where Firm A has a marginal cost of $20 and Firm B has
a marginal cost of $16. There are no fixed costs incurred by either firm.
Assume that these firms compete in Cournot fashion.
Part I. How many units of output each firm produces? Show your work. (2 marks)
Part II. What is the equilibrium price in the market? Show your work. (2 marks)
Part III. How much profit each firm makes? Show your work. (2 marks)
Part IV. What is the consumer surplus? Show your work. (2 marks)
Alternatively, assume now that these firms compete in Bertrand fashion.
Part V. What is the equilibrium price in the market now? Explain your reasoning. (2 marks)
Part VI. How many units of output each firm produces? Show your work. (2 marks)
Part VII. How much profit each firm makes now? Show your work. (2 marks)
Part VIII. What is the consumer surplus? Show your work. (2 marks)
Part IX. Under which competition, Cournot vs. Bertrand, social welfare is higher? Show your work.
(2 marks)