Home Demand: 90 - 2Pt Foreign Demand: 50 - 4Pt* Home Supply: 30 + 2Pt Foreign Supply: 10 + 2Pt* There are demand and supply functions for good corn for the home country and demand and supply functions for good wheat for the foreign country. Home country as an importer and foreign country as an exporter trade with each other, at zero cost of transportation. A. Find and graph the equilibrium under free trade. What is the world price and the volume of trade? Also, in the absence of trade, what are the prices that would prevail in home country for corn and in foreign country for wheat?. (Pt = Pt* = Pw -> Pw; world prices) B. Suppose home imposes a specific tariff of 5 on corn imports. Find and graph the effects of tariff on price of corn in each country, on the quantity of corn supplied and demanded in each country, on volume of trade? And briefly explain these results in relation to the effects of the tariff? C. Let the tariff conditions in section (b) be valid. Determine and graph the effect of tariff on the welfare of each of the following group: i) Home import-competing producers, ii) Home consumers, iii) Home government. Briefly explain your results. D. Starting from free trade conditions, section (a), assume that foreign country offers exporters a subsidy of 5 per unit. Calculate and show the effects on welfare both of individual groups and of the economy as a whole. Briefly explain your results. How does these results of subsidy differ from results of tarif in sections (b) and (c)?
Home Demand: 90 - 2Pt Foreign Demand: 50 - 4Pt*
Home Supply: 30 + 2Pt Foreign Supply: 10 + 2Pt*
There are demand and supply functions for good corn for the home country and demand and supply functions for good wheat for the foreign country. Home country as an importer and foreign country as an exporter trade with each other, at zero cost of transportation.
A. Find and graph the equilibrium under free trade. What is the world
volume of trade? Also, in the absence of trade, what are the prices that would prevail
in home country for corn and in foreign country for wheat?.
(Pt = Pt* = Pw -> Pw; world prices)
B. Suppose home imposes a specific tariff of 5 on corn imports. Find and graph the
effects of tariff on price of corn in each country, on the quantity of corn supplied and
demanded in each country, on volume of trade? And briefly explain these results in
relation to the effects of the tariff?
C. Let the tariff conditions in section (b) be valid. Determine and graph the effect of tariff
on the welfare of each of the following group:
i) Home import-competing producers,
ii) Home consumers,
iii) Home government.
Briefly explain your results.
D. Starting from free trade conditions, section (a), assume that foreign country offers
exporters a subsidy of 5 per unit. Calculate and show the effects on welfare both of
individual groups and of the economy as a whole. Briefly explain your results. How
does these results of subsidy differ from results of tarif in sections (b) and (c)?
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