Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from foreign country. The import demand curve for good Y in home country is given by: MD = 170 – 2PY and the export supply curve for good Y in Foreign country is given by: EX = PY – 40. Free Trade Price: $70 30 Units of Good Y are traded under free trade If a tariff of $15 is imposed by the home country on each unit of good Y imported, foreign exporters receive a price of $85.
Consider two countries, home and foreign and a single good, Y. Assume that home country imports good Y from foreign country. The import demand curve for good Y in home country is given by: MD = 170 – 2PY and the export supply curve for good Y in Foreign country is given by: EX = PY – 40.
Free Trade
30 Units of Good Y are traded under free trade
If a tariff of $15 is imposed by the home country on each unit of good Y imported, foreign exporters receive a price of $85.
a) If home country imposes a specific tariff of $15 per unit of good Y imported, what is the price of good Y that Home consumers pay? Show your work.
b) If home country imposes a specific tariff of $15 per unit of good Y imported, how many units of good Y are traded now? Show your work.
c) If home country imposes a specific tariff of $15 per unit of good Y imported, what is the tariff revenue? Show your work.
d) Assume that instead of a specific tariff, an import quota will be used on good Y. What is the amount of the quota that will have identical effects (in terms of amount of good Y imports and the domestic price of good Y) as the specific tariff of $15? Explain your reasoning.
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