3610 PS5 - Cornell University Fall 2009 Economics 3610:...

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Cornell University Fall 2009 Economics 3610: Problem Set 5 Due 11/6/09 1. Small Country Tariff Suppose that there is a small country where the demand for a good is q = 11.5 - ½ p and the supply for the good is q = -6 +2p. The world price is 4. a. What is the autarky price? What is domestic consumption? What are consumer, producer, and total surplus? b. Under free trade, what is domestic production? Domestic consumption? Producer surplus? Consumer surplus? Total surplus? c. Suppose that there is a 25% ad valorem tax on imports. What is domestic production? Domestic consumption? Producer surplus? Consumer surplus? Government revenue? Total surplus? d. With the tariff, what is the loss from the consumption distortion? What is the loss from the production distortion? (These areas are labeled as b and d on our figures.) e. What is the difference in the autarky price and the world price in the absence of the tariff? What fraction of the difference in those prices is the 25% tariff equal to?
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3610 PS5 - Cornell University Fall 2009 Economics 3610:...

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