Consider a country that is a small open economy and that imports beer. Currently, the country imposes a 100% tariff on beer imports. a) Illustrate equilibrium in the domestic beer market using a supply and demand diagram. b) Now suppose the government lowers the tariff to 50%. Use a diagram to show gains or losses to beer consumers, beer producers and the government. Label and explain carefully. Who wins and who loses as a result of the tariff reduction? What is the net effect for the country? c) Using the same diagram, illustrate a quota that will produce a result equivalent to the 50% tariff. d) Sunnogo browing tochnoelegy hecomeg oveileble thet makes demectio
Consider a country that is a small open economy and that imports beer. Currently, the country imposes a 100% tariff on beer imports. a) Illustrate equilibrium in the domestic beer market using a supply and demand diagram. b) Now suppose the government lowers the tariff to 50%. Use a diagram to show gains or losses to beer consumers, beer producers and the government. Label and explain carefully. Who wins and who loses as a result of the tariff reduction? What is the net effect for the country? c) Using the same diagram, illustrate a quota that will produce a result equivalent to the 50% tariff. d) Sunnogo browing tochnoelegy hecomeg oveileble thet makes demectio
Chapter1: Making Economics Decisions
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Transcribed Image Text:Tariff liberalization
Consider a country that is a small open economy and that imports beer. Currently, the
country imposes a 100% tariff on beer imports.
a) Illustrate equilibrium in the domestic beer market using a supply and demand
diagram.
b) Now suppose the government lowers the tariff to 50%. Use a diagram to show gains
or losses to beer consumers, beer producers and the government. Label and explain
carefully. Who wins and who loses as a result of the tariff reduction? What is the net
effect for the country?
c) Using the same diagram, illustrate a quota that will produce a result equivalent to the
50% tariff.
d) Suppose that new brewing technology becomes available that makes domestic
production of beer cheaper (though foreign beer is still imported). Illustrate that change
on a supply-demand diagram first with the quota and then illustrate it with the 50%
tariff.
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