Given below are two groups’ (consumers, c, and a special interest group, i) true demands concerning a tariff on snack foods. Demand against (consumers): wtp($) = 80 + 2t Demand for (special interest): wtp($) = 50 - t Where t is the tariff rate. a. Graph the demand curves and explain how much tariff there will be if there were no free riding and all preferences were fully revealed. b. Now assume that “free riding” plagues the consumer group so that their revealed willingness to pay is given by: wtp($) = 30 + t . What are some causes of the “free riding”? Why is this not likely to happen to the producer group? c. Now what will be the equilibrium tariff rate? Graph this scenario in the same graph.
1. Given below are two groups’ (consumers, c, and a special interest group, i) true demands concerning a tariff on snack foods.
Demand against (consumers): wtp($) = 80 + 2t Demand for (special interest): wtp($) = 50 - t
Where t is the tariff rate.
a. Graph the demand
b. Now assume that “free riding” plagues the consumer group so that their revealed
wtp($) = 30 + t . What are some causes of the “free riding”? Why is this not likely to happen to the producer group?
c. Now what will be the equilibrium tariff rate? Graph this scenario in the same graph.
d. Relate the outcome to a partial equilibrium tariff graph.
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 5 images
