1. Consider Figure 1 (see next page) representing a market demand for a product, the marginal cost of a domestic monopolist (there is only one firm producing this product in the Home country) and the world price of the same product (there are many firms producing it in other countries). (i) What is the domestic price, the domestic production and imports in free trade? (ii) Now suppose there is a tarifft so that the domestic price is p" + t (such that there is still some imports). What is then the domestic production and imports? (iii) Suppose now that instead of a tariff t, a quota is introduced having the characteristic that the number of units imported is the same as the import level with the tariff t. What is the domestic price, the domestic production and imports with such a quota? (iv) Compare the levels of welfare with the tariff and with the quota.

1. Consider Figure 1 (see next page) representing a market demand for a product, the marginal cost of a domestic monopolist (there is only one firm producing this product in the Home country) and the world price of the same product (there are many firms producing it in other countries). (i) What is the domestic price, the domestic production and imports in free trade? (ii) Now suppose there is a tarifft so that the domestic price is p" + t (such that there is still some imports). What is then the domestic production and imports? (iii) Suppose now that instead of a tariff t, a quota is introduced having the characteristic that the number of units imported is the same as the import level with the tariff t. What is the domestic price, the domestic production and imports with such a quota? (iv) Compare the levels of welfare with the tariff and with the quota.

Economics (MindTap Course List)

13th Edition

ISBN:9781337617383

Author:Roger A. Arnold

Publisher:Roger A. Arnold

Chapter33: International Trade

Section: Chapter Questions

Problem 6QP

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