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161 Bonus Problem Set 6

The revenue gained by the government by auctioning

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Unformatted text preview: rice $150 with quota $100 World price D 100 150 200 300 350 Cameras (thousands) Using the information in this diagram, quantify the following: a. The revenue gained by the government by auctioning import licenses at $50 per camera. b. The value of the increase in producer surplus associated with the imposition of the quota. c. The value of the decrease in consumer surplus associated with the imposition of the quota. d. The net effect of the quota on the country’s welfare. 4. F&T Chapter 11 Question 2. In class, we derived a payoff matrix for two large countries (Home and Foreign) deciding whether or not to impose a tariff. Redraw the payoff matrix for a game between a large and small country. a) What is/are the Nash equilibrium/equilibria, assuming that the large country applies an optimal tariff? b) What does your answer to (a) tell you about the role of the WTO in a situation like this? 5. Imagine that, in 1996, Chile joined MERCOSUR, a customs unions formed by Argentina, Brazil, Paraguay, and Uruguay in 1991. Prior to 1996, Chile was imposing a tariff of 30%, and Chile was importing meat from the United States. The U.S. price of meat was $2,000 per ton, and imports were 40,000 tons. After Chile joined MERCOSUR it imported meat from other MERCOSUR members, free of import tariffs, at a price of $2,100 per ton, and its imports of meat increased to 50,000 tons. Calculate the amount of trade creation and trade diversion as a result of this change. For this product, did Chile gain economic welfare from joining MERCOSUR? If so, how much? If not, by how much would trade have to have increased, other things equal, for Chile to have benefited?...
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