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Homework 4-CH6a7

# Homework 4-CH6a7 - production change f What is the...

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ECO369 International Economic Issues GVSU, Wei Sun Homework 4 – Chapter 6 and 7 Tariffs and Quotas General Instructions: Write your answers clearly on Letter size paper. Mark the order of the questions. Please do NOT copy the questions. 1. Graph the supply and demand of a good that is produced domestically and imported. Assume that the country is not large enough to affect the world price. Illustrate the effects that a tariff on imports has. Discuss the following: a) Price of the good b) Domestic production c) Domestic consumption d) Import e) Government revenue 2. Suppose the world price for a good is 40 and domestic demand-and-supply curves are given by the following equations: (P stands for price, Q stands for quantity) Demand: P = 80 – 2Q; Supply: P = 5 + 3Q a. How much is consumed? b. How much is produced at home? c. How many units are imported? d. What are the values of consumer and producer surplus, respectively? e. If a tariff of 10 percent is imposed, by how much do consumption and domestic
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Unformatted text preview: production change? f. What is the post-tariff number of units of import? g. What is the change in consumer surplus and producer surplus, respectively? h. How much revenue does the government earn from the tariff? i. What is the net national cost of the tariff? 3. In what ways are tariffs and quotas similar? In what ways do they differ? 4. Suppose that the domestic demand and supply for hats in a small open economy are given by: Demand: Q = 100 – P; Supply: Q = 50 + 2P where Q denotes quantity and P denotes price. (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, how much will the domestic price rise? (c)What will be the welfare effects on this country of a quota of 11 units? (d) Suppose instead that this country negotiates a VER of 11 units with its chief foreign supplier. What are the welfare effects of this policy? 1...
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