1. Reciprocal Dumping in the absence of transport costs.Consider two countries, i{Spain, France}, each having the following inverse demandfunction:P = 20 – 2QAssume that there is only one firm in each country with the following cost function:TC* = 2qTransport costs are absent.a) Start by considering a situation of autarky. Determine the equilibrium quantity andprice in Spain.b) Compute total welfare in Spain under autarky (the sum of the consumer and producersurpluses).c) Now suppose that Spain opens up to international trade. Firms compete in quantitiesand transport costs are absent. In equilibrium determine (i) the quantity sold by theSpanish firm in Spain; (ii) the quantity sold by the French firm in Spain; (iii) thequantity sold by the Spanish firm in France; and (iv) the price of the good in Spain.d) Compute total welfare in Spain (the sum of the consumer and producer surpluses).

Inverse demand function: P=20-2Q Cost function: TC*=2q To determine…

Answered: 1. Reciprocal Dumping in the absence of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose that under free trade a final good F has a price of $1,000 and that the prices of two inputs, A and B, used in the production of F are PA = $300 and PB = 500 and that one unit each of A and B is used in producing one unit of F. Suppose also that a tariff of 20 percent is placed on good F, while imported inputs had tariffs of 20 percent and 30 percent respectively. Calculate the effective rate of tariff protection for domestic industry producing good F and interpret the meaning of your result (All steps must be shown to obtain full credit). Note: v = value added without tariff and v' = value added with tariff.
The demand and supply functions for a product in a large country are given as Qd = 130 – 3P and Qs = -30 + 2P respectively. The world price is 20$ and the large country imposes an ad valorem tariff of %50. After the imposition of tariff world price decreases to 16$. Calculate the change in consumer surplus, producer surplus, government revenue and social welfare after the imposition of tariff.
Imposition of an import tariff leads to Group of answer choices reduction in consumer surplus deadweight loss efficiency loss All of these are true
The small nation of Capralia has an abundant stock of Pashmina goats, a breed that yields high-quality cashmere. Capralia's authorities are still debating whether to open their economy to international trade. The international price of cashmere is $70,000 per metric ton, and the Capralian cashmere sells for $50,000 per metric ton. Place the consumer surplus triangle (CS) and the producer surplus triangle (PS) to correctly depict consumer and producer surplus if Capralia chooses to open its borders to the international cashmere trade. 100 Price (metric ton) 90 80 70 80 50 40 30 20 10 10 0 Capralia's Domestic Cashmere Market 6 domestic supply domestic equilibrium 12 18 24 30 36 42 Quantity (thousands of metric tons) 48 54 60 CS Capralia will import 36,000 metric tons of cashmere. Capralia will export 24.000 metric tons of cashmere. Capralia will not engage in international trade. Capralia will export 12,000 metric tons of cashmere. Capralia will import 24,000 metric tons of cashmere. PS…
Home's demand curve for wheat is P = 10 - (1/20)Qd. Its supply curve is P = 4+ (1/20)Qs Foreign's demand curve for wheat is P * = 8 - (1/20) Qd* Its supply curve is P* = 2+(1/20)Qs* Determine the effect of the tariff on Home import-competing producers APS = Home consumers ACS = Home government tariff revenue AGR= Adding these effects together AWAPS + ACS + AGR =
Consider the pharmaceutical market in the US. The demand is Q = 200 - 2P Q P while supply is 2 40s Q P. The free trade price is 25. A) Calculate consumer surplus, producer surplus, total surplus, and imports under free trade. Illustrate all of these on a fully labelled graph. B) Suppose that the US puts a tariff of 6 on pharmaceuticals. When it does this, the free trade prices falls to 24. Calculate consumer surplus, producer surplus, tariff revenues, total surplus and deadweight loss under the tariff. Illustrate all of these on a fully labelled graph. C) Is the country better off under the tariff or free trade? How do you know?
Domestic demand for natural gas in a small economy is characterized by the equation P=350-5QP=350-5Q , domestic supply is characterized by the equation Q=0.5-P+35Q=0.5-P+35 , and the world price is equal to $60. An export tariff of $6 per unit will Group of answer choices result in net welfare loss of 14.6 lead to a loss in consumer surplus lead to an export level that is less than half of the original amount result in tariff revenue that is larger than the loss in producer surplus
All of the following statements about import tariffs are true except Group of answer choices they result in countries selling the product at a lower price to domestic consumers they reduce the volume of trade and the gains from trade they limit specialization and the division of labor they yield revenue for the government that levies tariffs
Consider the market for wheat as shown in the Wheat Exports figure. In that figure, the world price p., for wheat is $300 per tonne. a) Perform a Welfare Analysis on the free trade equilibrium. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. b) Suppose the government introduces a tax on exported wheat, so that firms must pay the government $75 per tonne of wheat exported. (i) Argue why this would reduce the price paid by domestic consumers, even though wheat sold to them does not attract the tax. (ii) Perform a Welfare Analysis on the effect of this tax. That is, describe and show the Consumer Surplus, Producer Surplus, Government Tax Receipts, Total Surplus, and any Deadweight Loss. (iii) For any Deadweight Loss identified, give an intuitive description of why this deadweight loss exists. c) Suppose instead the tax were $150 per tonne for exports. (i) What price would domestic consumers now pay for…
The following graph shows the domestic demand for and supply of maize in Kenya. The world price (Pw) of maize is $260 per ton and is displayed as a horizontal black line. Throughout the question, assume that all countries under consideration are small, that is, the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. PRICE (Dollars per ton) 485 Domestic Demand Domestic Supply 460 435 410 385 360 335 P 310 285 260 PW 235 0 10 20 30 40 50 60 70 80 90 100 QUANTITY (Tons of maize) (?) If Kenya is open to international trade in maize without any restrictions, it will import tons of maize. Suppose the Kenyan government wants to reduce imports to exactly 20 tons of maize to help domestic producers. A tariff of $ achieve this. A tariff…
The following graph shows the domestic supply of and demand for maize in Burundi. The world price (Pw) of maize is $270 per ton and is represented by the horizontal black line. Throughout the question, assume that the amount demanded by any one country does not affect the world price of maize and that there are no transportation or transaction costs associated with international trade in maize. Also, assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place. 450 Domestic Demand Domestic Supply 430 410 390 370 350 330 310 290 P 270 250 40 80 120 180 200 240 280 320 360 400 QUANTITY (Tons of maize) If Burundi is open to international trade in maize without any restrictions, it will import tons of maize. Suppose the Burundian government wants to reduce imports to exactly 160 tons of maize to help domestic producers. A tariff of per ton will achieve this. A tariff set at this level would raise $ in revenue for the…
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