Subject 3: Protectionism The supply and demand for wheat in the small country Tinyland are: Q° = P and Qª = 400 – P, respectively. The world price of wheat is Pw = 100. %3D a. Suppose the government imposes an import quota on wheat Q = 100. i. Find the price of wheat in Tinyland. ii. Find the tariff per unit that generates the same volume of trade as the quota. iii. Next suppose that instead of a quota or a tariff, the government levies a specific (per unit) consumption tax on wheat. Find the price of wheat in Tinyland when the tax is equal to the tariff you found in part ii and the quantity of wheat imported. NB: In contrast to a tariff, which is levied on all units produced abroad (imported), a consumption tax is levied on all uits sold in the domestic market regardless of where they were produced %3D b. Which of these three policies, i.e., quota, tariff, and consumption tax, do consumers and producers prefer? Give precise answers by evaluating the welfare of each group. Assuming that the government allocates quota tickets to its political supporters who are citizens of Tinyland, which of the three policies would you recommend from the perspective of the country as a whole. Draw appropriate graphs to illustrate all of your results.
Subject 3: Protectionism The supply and demand for wheat in the small country Tinyland are: Q° = P and Qª = 400 – P, respectively. The world price of wheat is Pw = 100. %3D a. Suppose the government imposes an import quota on wheat Q = 100. i. Find the price of wheat in Tinyland. ii. Find the tariff per unit that generates the same volume of trade as the quota. iii. Next suppose that instead of a quota or a tariff, the government levies a specific (per unit) consumption tax on wheat. Find the price of wheat in Tinyland when the tax is equal to the tariff you found in part ii and the quantity of wheat imported. NB: In contrast to a tariff, which is levied on all units produced abroad (imported), a consumption tax is levied on all uits sold in the domestic market regardless of where they were produced %3D b. Which of these three policies, i.e., quota, tariff, and consumption tax, do consumers and producers prefer? Give precise answers by evaluating the welfare of each group. Assuming that the government allocates quota tickets to its political supporters who are citizens of Tinyland, which of the three policies would you recommend from the perspective of the country as a whole. Draw appropriate graphs to illustrate all of your results.
Chapter1: Making Economics Decisions
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Transcribed Image Text:Subject 3: Protectionism
The supply and demand for wheat in the small country Tinyland are: Q$ = P and Qª
400 – P, respectively. The world price of wheat is Py = 100.
a. Suppose the government imposes an import quota on wheat Q
i. Find the price of wheat in Tinyland.
ii. Find the tariff per unit that generates the same volume of trade as the quota.
iii. Next suppose that instead of a quota or a tariff, the government levies a specific (per
unit) consumption tax on wheat. Find the price of wheat in Tinyland when the tax is
equal to the tariff you found in part ii and the quantity of wheat imported.
NB: In contrast to a tariff, which is levied on all units produced abroad (imported), a
consumption tax is levied on all units sold in the domestic market regardless of where they
were produced,
= 100.
b. Which of these three policies, i.e., quota, tariff, and consumption tax, do consumers and
producers prefer? Give precise answers by evaluating the welfare of each group. Assuming
that the government allocates quota tickets to its political supporters who are citizens of
Tinyland, which of the three policies would you recommend from the perspective of the
country as a whole. Draw appropriate graphs to illustrate all of your results.
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