EconomicsThe following figure shows the demand and supply schedules for an import good in a small open economy with perfectlycompetitive markets. P FT. P C, and Pp are the free-trade, consumer, and producer prices respectively. The country firstimposes a consumption tax t on the import good, and then a production subsidy s on the same, such that s=t.P,=P.s, S,D, D,Calculate the net change in national welfare as a result of the tax and subsidy.O a. Net national welfare decreases by area b+d.b. Net national welfare increases by area c.OC. Net national welfare decreases by area b.d. Net national welfare increases by area a+c.O e. Net national welfare increases by area a.

Tax is the additional burden imposed while exporting and importing the goods.

The following figure shows the demand and supply schedules for an import good in a small open economy with perfectly competitive markets. P FT. P C. and P p are the free-trade, consumer, and producer prices respectively. The country first imposes a consumption tax t on the import good, and then a production subsidy s on the same, such that s = t. D P,=P. P S, 5, D, D, Calculate the net change in national welfare as a result of the tax and subsidy. a. Net national welfare decreases by area b+d. b. Net national welfare increases by area c. c. Net national welfare decreases by area b. d. Net national welfare increases by area a+c. e. Net national welfare increases by area a.

The following figure shows the demand and supply schedules for an import good in a small open economy with perfectly competitive markets. P FT. P C. and P p are the free-trade, consumer, and producer prices respectively. The country first imposes a consumption tax t on the import good, and then a production subsidy s on the same, such that s = t. D P,=P. P S, 5, D, D, Calculate the net change in national welfare as a result of the tax and subsidy. a. Net national welfare decreases by area b+d. b. Net national welfare increases by area c. c. Net national welfare decreases by area b. d. Net national welfare increases by area a+c. e. Net national welfare increases by area a.

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter17: International Trade

Section: Chapter Questions

Problem 2.5P

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