Assignment 10

# Assignment 10 - (v[4 points Determine the effect of this...

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ECN 436: International Trade Theory Assignment: Optimal Tariff Total Points: 40 Let us suppose that the U. S. demand curve for sugar is, D = 300 - 3p, and its supply curve is, S = 100 + 2p. Consider that the rest of the world has an export supply curve, XS* = - 100 + 5p. (i) [3 points] Derive the U. S. import demand schedule. What would be the prices of sugar in the U. S. and the rest of the world if the U. S. did not trade? (ii) [2 points] Suppose the U. S. trades at zero transportation cost. Find the world price under free trade. What is the volume of trade? Now, suppose that the U. S. market is significant proportion of the world market and the government considers imposing a specific tariff \$ t per unit of on sugar imports. (iii) [4 points] Determine the price of sugar in the U. S. and the rest of the world in the event the tariff is imposed. (iv) [3 points] What would be the quantity of sugar supplied and demanded in the U. S. and, therefore, the volume of trade?
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Unformatted text preview: (v) [4 points] Determine the effect of this proposed tariff on the welfare of the sugar producers and consumers in the U. S. (vi) [2 points] What is the tariff revenue for the U. S. government? (vii) [8 points] Show graphically and calculate the terms of trade gain, the production distortion, the consumption distortion and the total effect on welfare of the proposed tariff. (viii) [6 points] If the U. S. government wants to impose a specific tariff such that it maximizes social welfare, what will that be? Explain. (ix) [8 points] Suppose due to the pressure from the sugar-lobby the U. S. government counts a dollar’s worth of gain to the sugar producers as being worth \$1.5 of either consumer gain or government revenue. What is the effect of the specific tariff t, on the government’s new objective ? In the presence of this political pressure, what tariff will the government impose? At this rate, what is the amount of trade? Explain....
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