Consider a simple world of 2 countries, Domestic (Dom) and Foreign (For), one good and increasing marginal costs. In autarky: Domestic: QD = 40 – 4*P, Qs = -8 + 4*P Foreign: QD = 22 – 4*P, Qs = -2 + 8*P a) Discuss the consequences of opening to free trade b) Suppose that after opening to trade Domestic imposes a $2 tariff per unit imported. Assume that Domestic is, in this situation, “Small". Discuss the consequences of the tariff for Domestic only c)Suppose that Domestic was "Large" when it imposed the tariff. Discuss how would the consequences of the tariff be different? %3D |
Consider a simple world of 2 countries, Domestic (Dom) and Foreign (For), one good and increasing marginal costs. In autarky: Domestic: QD = 40 – 4*P, Qs = -8 + 4*P Foreign: QD = 22 – 4*P, Qs = -2 + 8*P a) Discuss the consequences of opening to free trade b) Suppose that after opening to trade Domestic imposes a $2 tariff per unit imported. Assume that Domestic is, in this situation, “Small". Discuss the consequences of the tariff for Domestic only c)Suppose that Domestic was "Large" when it imposed the tariff. Discuss how would the consequences of the tariff be different? %3D |
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
![Consider a simple world of 2 countries,
Domestic (Dom) and Foreign (For), one good
and increasing marginal costs. In autarky:
Domestic: QD = 40 – 4*P, Qs = -8 +
||
4*P
Foreign: QD = 22 – 4*P, Qs = -2 + 8*P
a) Discuss the consequences of
opening to free trade
b) Suppose that after opening to trade
Domestic imposes a $2 tariff per unit
imported. Assume that Domestic is, in
this situation, "Small". Discuss the
consequences of the tariff for Domestic
only
c)Suppose that Domestic was "Large"
when it imposed the tariff. Discuss how
would the consequences of the tariff
be different?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33f7303f-bebe-4c1a-a656-cd8e3df7de3e%2F81c85927-5466-47b7-aef8-fd56a7afe2f6%2Feaqj8ln_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Consider a simple world of 2 countries,
Domestic (Dom) and Foreign (For), one good
and increasing marginal costs. In autarky:
Domestic: QD = 40 – 4*P, Qs = -8 +
||
4*P
Foreign: QD = 22 – 4*P, Qs = -2 + 8*P
a) Discuss the consequences of
opening to free trade
b) Suppose that after opening to trade
Domestic imposes a $2 tariff per unit
imported. Assume that Domestic is, in
this situation, "Small". Discuss the
consequences of the tariff for Domestic
only
c)Suppose that Domestic was "Large"
when it imposed the tariff. Discuss how
would the consequences of the tariff
be different?
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