Tariffs and quotas - Tariffs and quotas(E.S de Dios 1 Suppose the market for a good in the absence of international trade(i.e autarky is described

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Tariffs and quotas (E.S. de Dios) 1. Suppose the market for a good in the absence of international trade (i.e., autarky) is described by the following functions of demand and supply: Q D = a bP (1) Q S = – c + dP . So that – as before – equilibrium price and quantity in autarky are given respectively by: P 0 = a + c b + d and Q 0 = ad - bc b + d . (2) 2. If there is international trade and the country is “small” relative to the rest of the world, it can import as much or as little as it needs at the world price P w without affecting that price. This implies that rather than P 0 , the world price P w (which is less than P 0 ) becomes the domestic price. It is easy to see that buyers will then demand the quantity Q D * = a bP w , (3) while sellers will produce Q S * = – c + dP w . (4) But where before quantity demanded equalled quantity supplied, now because price is lower, Q D * is greater than Q S * , and the difference is made up by imports. What will be the quantity of imports? The equilibrium quantity of imports M * is simply the difference between Q D * and Q S * , and this is obtained by subtracting (4)
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

This note was uploaded on 11/26/2011 for the course ECONOMICS 101 taught by Professor Dean during the Spring '09 term at University of the Philippines Diliman.

Page1 / 3

Tariffs and quotas - Tariffs and quotas(E.S de Dios 1 Suppose the market for a good in the absence of international trade(i.e autarky is described

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online