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Unformatted text preview: price is $10? b) How do your answers in part b change if this country were to impose a tariff of $3? 4 . Suppose that the domestic demand and supply for hats in a small open economy are given by Q = 100 P (demand) Q = 50 +2P (supply) a) If the world price is $10, what is the free trade level of imports? b) Suppose that the country imposes a quota of 11 units. Calculate and graph the following effects of this import quota: 1 1) The increase in the domestic price 2) The quota rents 3) The consumption distortion loss 4) The production distortion loss 5. True or false? Explain. Demonstrate graphically where appropriate. a) The more elastic (i.e., the flatter) the domestic supply curve, the higher the production distortion loss from any tariff. b) If a small open economy imposes an import quota, the social (welfare) costs of such quota will always exceed its benefits. 2...
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- Winter '09
- Comparative Advantage