Consider a small open economy, Suppose the market for corn in Banana Republic is competitive. The domestic market demand function for corn is Q^d =20-P and the domestic market supply function is Q^s =P-4. both measured in billions of bushels per year. Also assume the import supply curve is infinitely elastic at a price of $4 per bushel. 1. In the perfectly competitive market, calculate the consumer's totally willingness to pay and show it on the graph. 2. Now suppose the government imposes a tariff of $1 per bushel. Calculate the CS, PS,and DWL, and show them graphically. 3. Instead of tariff , suppose the government imposes a import quota of 6 billion bushels. Calculate the CS, PS and DWL, and show them graphically. 4. Now suppose instead of a single policy, the government uses a policy combination by imposes a tariff of $1 per bushel and an import quota of 6 billion bushels at the same time. Calculate the new equilibrium price and show it on a graph.
Consider a small open economy, Suppose the market for corn in Banana Republic is competitive. The domestic
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