Question #3. Question #1 is attached for reference. Consider again the economy of Andorra. The only difference with respect to exercise 1 isthat now we assume that each unit of peanut production produces a social benifit of 10ptas. (The supply and demand, and the world prices, are same as in exercise 1.)a) Calculate the total effect on welfare of an import tarriff of 5 per unit.b) Calculate the total effect of a production subsidy of 5 per unit.c) Why does the production subsidy lead to a higher welfare gain than the tariff? 1. Andorra is a small country, incapable of affecting world prices. It imports peanuts at theworld price of 10 cents per sack. Andorra's demand for peanuts is given by: D = 400– 10P.Andorra's supply curve for peanuts is: S = -20 + 5P. Determine the equilibrium underfree trade.a) Calculate and show in a diagram the following effects of a quota that limits the importof peanuts to 60 sacks.· The increase in the domestic price.· The quota revenue.· The loss due to production distortion.· The loss due to consumption distortion.b) Could the Government of Andorra have achieved the same trade result using a tariff?

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Consider again the economy of Andorra. The only difference with respect to exercise 1 is that now we assume that each unit of peanut production produces a social benifit of 10 ptas. (The supply and demand, and the world prices, are same as in exercise 1.) a) Calculate the total effect on welfare of an import tarriff of 5 per unit. b) Calculate the total effect of a production subsidy of 5 per unit. c) Why does the production subsidy lead to a higher welfare gain than the tariff?

Consider again the economy of Andorra. The only difference with respect to exercise 1 is that now we assume that each unit of peanut production produces a social benifit of 10 ptas. (The supply and demand, and the world prices, are same as in exercise 1.) a) Calculate the total effect on welfare of an import tarriff of 5 per unit. b) Calculate the total effect of a production subsidy of 5 per unit. c) Why does the production subsidy lead to a higher welfare gain than the tariff?

ENGR.ECONOMIC ANALYSIS

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ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

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Question

Question #3. Question #1 is attached for reference.

Consider again the economy of Andorra. The only difference with respect to exercise 1 is
that now we assume that each unit of peanut production produces a social benifit of 10
ptas. (The supply and demand, and the world prices, are same as in exercise 1.)
a) Calculate the total effect on welfare of an import tarriff of 5 per unit.
b) Calculate the total effect of a production subsidy of 5 per unit.
c) Why does the production subsidy lead to a higher welfare gain than the tariff?

1. Andorra is a small country, incapable of affecting world prices. It imports peanuts at the
world price of 10 cents per sack. Andorra's demand for peanuts is given by: D = 400– 10P.
Andorra's supply curve for peanuts is: S = -20 + 5P. Determine the equilibrium under
free trade.
a) Calculate and show in a diagram the following effects of a quota that limits the import
of peanuts to 60 sacks.
· The increase in the domestic price.
· The quota revenue.
· The loss due to production distortion.
· The loss due to consumption distortion.
b) Could the Government of Andorra have achieved the same trade result using a tariff?

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