The supply and demand for wheat in the small country Tinyland are: Qs = P and Qd = 400 – P, respectively. The world price of wheat is Pw = 100. a. Suppose the government imposes an import quota on wheat Q = 100. Find the price of wheat in Tinyland. Find the tariff per unit that generates the same volume of trade as the quota. 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. i. ii. iii. 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.

The supply and demand for wheat in the small country Tinyland are: Qs = P and Qd = 400 – P, respectively. The world price of wheat is Pw = 100. a. Suppose the government imposes an import quota on wheat Q = 100. Find the price of wheat in Tinyland. Find the tariff per unit that generates the same volume of trade as the quota. 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. i. ii. iii. 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.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The supply and demand for wheat in the small country Tinyland are: Qs = P and Qd = 400 – P,
respectively. The world price of wheat is Pw = 100.
a. Suppose the government imposes an import quota on wheat Q = 100.
Find the price of wheat in Tinyland.
Find the tariff per unit that generates the same volume of trade as the quota.
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),
i.
ii.
a consumption tax is levied on all units sold in the domestic market regardless of
where they were produced.
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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