HW3addition - What is the net welfare effect on the country...

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Addition Questions (to be submitted on 9 th March) 1. Analyze the impact on the welfare of the two countries (A and B) when the differences in the wage rate (wage rate in country A is higher than that in country B) leads to (permanent) labor migration (workers can freely move between countries). 2. At the international price of $20/unit, domestic production is 5,000 units and domestic consumption is 6,000 units. With a 20 percent tariff, domestic production increases by 20 percent and domestic consumption decreases by 25 percent. What is the effect (on CS, PS and Tariff Revenue) of this tariff on the affected parties?
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Unformatted text preview: What is the net welfare effect on the country as a whole? 3. Suppose that the free trade payoff matrix of domestic and foreign firm is given as: Foreign Firm Domestic Firm a) Will the foreign firm produce the good? Why or why not? Assuming no subsidy, will the home firm produce the good? Why or why not? b) Suppose, now, that a subsidy of $ 50 is given to the home firm. Will this subsidy change the production pattern from that of part a)? If so, why? If not, why not? Is it beneficial to the home country? Explain. Produce Does not produce Produce -30, 20 100, 0 Does not Produce 0, 140 0, 0...
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