Question IV: (tariff in the 2-country case) Home's demand and supply for wheat are given by the following equations. D = 90 20P; S = 30 +20P Foreign's demand and supply for wheat are given by the following equations. D* 110-20P; S* = 10+20P a) b) c) d) e) f) g) Calculate the autarky equilibrium price and quantity of wheat in Home. Calculate the autarky equilibrium price and quantity of wheat in Foreign. Which country has a comparative advantage in wheat? If the countries open to free trade in wheat, which country will import wheat and which country will export wheat? Based on your answer to part c) above, derive the import demand schedule for the country that will import wheat in the free trade situation. Based on your answer to part c) above derive the export supply schedule for the country that will export wheat in the free trade situation. Using the import demand schedule and the export supply schedule derived before, find the free trade equilibrium price of wheat. What is the amount of wheat traded in the world market in the free trade situation? Show your results diagrammatically. Now suppose the importing country imposes a tariff of 0.5 on wheat imports. How will this affect the import demand curve of the importing country? What will be the new world price of wheat? What will be the volume of trade in wheat? (Derive it numerically and show it diagrammatically.) h) Answer the following questions by comparing the free trade equilibrium in the importing country to the equilibrium that will obtain after the importing country has imposed a tariff of 0.5. i) What will be the price of wheat in the importing country? ii) What happens to the consumer surplus in the importing country? iii) What happens to the producer surplus in the importing country? iv) What happens to the tariff revenue in the importing country? v) What is the overall impact on the welfare of the importing country? (show your results numerically and diagrammatically. If you cannot do the calculations, you will get partial credit for showing it diagrammatically.)
Question IV: (tariff in the 2-country case) Home's demand and supply for wheat are given by the following equations. D = 90 20P; S = 30 +20P Foreign's demand and supply for wheat are given by the following equations. D* 110-20P; S* = 10+20P a) b) c) d) e) f) g) Calculate the autarky equilibrium price and quantity of wheat in Home. Calculate the autarky equilibrium price and quantity of wheat in Foreign. Which country has a comparative advantage in wheat? If the countries open to free trade in wheat, which country will import wheat and which country will export wheat? Based on your answer to part c) above, derive the import demand schedule for the country that will import wheat in the free trade situation. Based on your answer to part c) above derive the export supply schedule for the country that will export wheat in the free trade situation. Using the import demand schedule and the export supply schedule derived before, find the free trade equilibrium price of wheat. What is the amount of wheat traded in the world market in the free trade situation? Show your results diagrammatically. Now suppose the importing country imposes a tariff of 0.5 on wheat imports. How will this affect the import demand curve of the importing country? What will be the new world price of wheat? What will be the volume of trade in wheat? (Derive it numerically and show it diagrammatically.) h) Answer the following questions by comparing the free trade equilibrium in the importing country to the equilibrium that will obtain after the importing country has imposed a tariff of 0.5. i) What will be the price of wheat in the importing country? ii) What happens to the consumer surplus in the importing country? iii) What happens to the producer surplus in the importing country? iv) What happens to the tariff revenue in the importing country? v) What is the overall impact on the welfare of the importing country? (show your results numerically and diagrammatically. If you cannot do the calculations, you will get partial credit for showing it diagrammatically.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Question IV:
(tariff in the 2-country case)
Home's demand and supply for wheat are given by the following equations.
D = 90 20P; S = 30 +20P
Foreign's demand and supply for wheat are given by the following equations.
D* 110-20P; S* = 10+20P
a)
b)
c)
d)
e)
f)
g)
Calculate the autarky equilibrium price and quantity of wheat in Home.
Calculate the autarky equilibrium price and quantity of wheat in Foreign.
Which country has a comparative advantage in wheat? If the countries open to free trade in
wheat, which country will import wheat and which country will export wheat?
Based on your answer to part c) above, derive the import demand schedule for the country that
will import wheat in the free trade situation.
Based on your answer to part c) above derive the export supply schedule for the country that
will export wheat in the free trade situation.
Using the import demand schedule and the export supply schedule derived before, find the free
trade equilibrium price of wheat. What is the amount of wheat traded in the world market in the free trade
situation? Show your results diagrammatically.
Now suppose the importing country imposes a tariff of 0.5 on wheat imports. How will this
affect the import demand curve of the importing country? What will be the new world price of wheat?
What will be the volume of trade in wheat? (Derive it numerically and show it diagrammatically.)
h)
Answer the following questions by comparing the free trade equilibrium in the importing
country to the equilibrium that will obtain after the importing country has imposed a tariff of 0.5. i) What
will be the price of wheat in the importing country? ii) What happens to the consumer surplus in the
importing country? iii) What happens to the producer surplus in the importing country? iv) What happens
to the tariff revenue in the importing country? v) What is the overall impact on the welfare of the
importing country? (show your results numerically and diagrammatically. If you cannot do the
calculations, you will get partial credit for showing it diagrammatically.)
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