Consider a large country with a domestic demand characterized by the inversedemand function P=1000-Q. Domestic supply is represented by the equation P=400+Q.Finally, the world price of the good is 900. You know that an export tariff pass-through is10%, meaning that foreign price decreases by 10% value of an export tariff t; moregenerally, 10% of any change in the domestic price is absorbed by the world market.a) Draw a diagram of a free trade case, label imports, consumer and producersurplus.b)Now you want to introduce export quota restrictions g. Calculate the value of theoptimal export quota q, which maximizes domestic welfare. Illustrate CS, PS, QR,and DWL on your graph. Calculate their numerical values.

In summary, trade policy instruments such as export quotas and export tariffs are used to regulate…

a) Draw a diagram of a free trade case, label imports, consumer and producer surplus. b) Now you want to introduce export quota restrictions q. Calculate the value of the optimal export quota g, which maximizes domestic welfare. Illustrate CS, PS, QR, and DWL on your graph. Calculate their numerical values.

a) Draw a diagram of a free trade case, label imports, consumer and producer surplus. b) Now you want to introduce export quota restrictions q. Calculate the value of the optimal export quota g, which maximizes domestic welfare. Illustrate CS, PS, QR, and DWL on your graph. Calculate their numerical values.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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