ECON 101 Lecture 14: Lecture 14 - Costs and Benefits of Trade Restrictions

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25 Oct 2016

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Lecture 14 - costs and benefits of trade restrictions. Effects of a tariff in a small or large country: when home is a small country and imposes a tariff, there is an increase in domestic price but world-market prices remain unaffected. Unambiguous surplus loss in partial equilibrium: when home is a large country and imposes a tariff, the increase in domestic price is less than the tariff increase as foreign price falls. Possible compensation of surplus loss with tariff revenue in partial equilibrium. Tariff on home imports in a small country. Foreign is at least : after the tariff is imposed, home domestic price p differs from foreign domestic price p* by : += Tariff on home imports when both countries are large: this intersection is the world price, and the quantity value is the quantity exported out of the exporter and imported into the importer.

Related Questions

Trade Policy.

The demand for cars in Home is q = 30 â P and the supply of cars in Home is q = P. The demand for cars in Foreign is q = 10 â P and the supply of cars in Foreign is q = P.

a) Calculate the autarky equilibrium price and quantity in each country.

b) Who is the importer of cars and who is the exporter?

c) Write the import demand for Home and the export supply for Foreign.

d) Find the equilibrium world price under free trade. What is the amount of cars traded between the two countries?

e) Suppose the country that is the importer imposes a tariff of $2 per unit on car imports. Find the new equilibrium world price under the tariff. What is the amount of cars traded between the two countries now? Show this in a graph with the import demand for Home and the export supply for Foreign.

f) Look at figure 1 for Home and fill in the table below (with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

g) Look at figure 2 for Foreign and fill in the table below ((with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

h) Does Home experience a terms of trade gain or loss as a result of the tariff? Does Foreign experience a terms of trade gain or loss as a result of the tariff?

carminerat489

The demand for computers in a certain country is given by D = 20000 â 300P; where P is the price of a computer. Supply by domestic computers producers is S = 10000 + 100P.

(a) Assuming that the economy is closed, find the equilibrium price and production quantity of computers.

(b) The economy opens to trade. The world price of a computer is $20. Find the domestic quantities demanded and supplied and the quantity of imports or exports. Who will support the opening of the computer market to trade and who will oppose it?

(c) The government imposes a tariff of $1 per computer. Find the effects on domestic quantities demanded and supplied and on the quantity of imports or exports. Also find the tariff revenue collected by government. Who will support the imposition of tariff and who will oppose it?

(d) Suppose the government imposes an import quota of 1600 computers. Find the equilibrium price in the domestic computer market, as well as the quantities produced by domestic firms and purchased by domestic consumers.

Type y

Introduction: Suppose that the U.S. currently buys and produces wingdings, a fictitious economic good. The U.S. faces the world price, and domestic suppliers sell as many

wingdings as possible at the world price. Now, the government succumbs to lobbying by
wingding producers and imposes a protective tariff on wingdings amounting to $2 per
wingding. The graph below represents this situation.
World Price
World Price + Tariff
U.S. Supply
U.S. Demand
Price
Quantity (millions of pounds)
6 12 16 18 26
6
8
10
4
Market for Wingdings:<?xml:namespace prefix = o ns = "urn:schemas-microsoft-com:office:office" />

Answer the following questions. Use formulas and show calculations as well as final
answers.
A. Does the United States have a comparative advantage in wingdings? Explain.
B. Discuss the effect of the tariff on the number of imports..
C. How did the imposition of the tariff change consumer surplus?
D. How did the imposition of the tariff change producer surplus?
E. What is the overall result of the tariff in terms of welfare?

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ECON 101 Lecture 14: Lecture 14 - Costs and Benefits of Trade Restrictions

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