PROBLEM (5) (tariff) The domestic (US) demand and supply for soy is p = 80 − QD and p = QS + 10 respectively. US market is very small relative to the world market, and the world (equilibrium) price is $20. Draw one graph for the market marking all intercepts and intersections to help you with (a) and (b) below. (a) If there is NO trade, what is the CS, PS, net domestic benefits, DWL? (b) If there is free trade, what is the CS, PS, net domestic benefits, DWL? How many units are imported? Now the state imposes a tariff of t dollars per unit. (c) What should be the tariff amount t to maximize tariff revenues? In this case, what is the DWL?
PROBLEM (5) (tariff) The domestic (US) demand and supply for soy is p = 80 − QD and p = QS + 10 respectively. US market is very small relative to the world market, and the world (equilibrium) price is $20. Draw one graph for the market marking all intercepts and intersections to help you with (a) and (b) below.
(a) If there is NO trade, what is the CS, PS, net domestic benefits, DWL?
(b) If there is free trade, what is the CS, PS, net domestic benefits, DWL? How many units are imported? Now the state imposes a tariff of t dollars per unit.
(c) What should be the tariff amount t to maximize tariff revenues? In this case, what is the DWL?
(d) What should be the tariff amount t so that consumers and producers equally well off (CS equals PS)?
(e) What should be the tariff amount t to maximize PS?
(f) What is the most efficient tariff amount t? What is the least efficient tariff amount t? (i.e. that minimizes and maximizes DWL respectively.)
Trending now
This is a popular solution!
Step by step
Solved in 5 steps with 3 images
