Consider two countries Home and Partner trading industry goods. Partner’s supply curve can be represented as follows: XSP=P-1 Home’s import demand for industry goods is given by: MD=10-P The rest of the world is represented by the following supply of industry goods. XSRoW=P-1 a) Derive and graph Home’s import supply curve and find the equilibrium price under free trade. Quantify the amount of goods exported and imported. b) Assume that Home imposes a MFN-tariff of 1 on all industry imports. Find the new equilibrium and quantify the domestic price, border prices and quantities exported and imported. c) What happens if Home removes the tariff for imports from Partner but not from the rest of the world. Find the new equilibrium and quantify domestic price, border prices and quantities exported and imported.
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Consider two countries Home and Partner trading industry goods. Partner’s supply curve can be represented as follows: XSP=P-1 Home’s import
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