Unformatted text preview: e is not fully satisfied with the outcome of this arrangement. It decides to impose a specific tariff of 0.5 on imports of rice from Foreign. Solve for the i) post‐
tariff price of rice in each country, ii) quantity of rice demanded and supplied in each country, iii) the total volume of trade. e) What is the effect of the tariff in (d) on the i) welfare of producers, ii) welfare of consumers and iii) the welfare of the government. f) Provide a diagram to show the terms of trade gain, the efficiency loss and the total effect on social welfare of the tariff in part (d) . 2. What if the Foreign country in question (1) above was much larger? Suppose for instance that its demand curve was Qdf = 800 − 200 P and its supply curve was Qsf = 400 + 200 P . Solve again for the free trade equilibrium (price and volume of trade) and the effect of the 0.5 specific tariff on Home imports. How do your results differ from the former case? 3. The diagram below depicts an import quota of 100,000 cameras imposed by a small country. The quota raises the domestic price from the free trade level of $100 to a level of $150. Price
(dollars per camera) S Domestic p...
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- Fall '12
- free trade equilibrium