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Aniva and Kartaly are small countries that protect their economic growth from rapidly advancing globalization by

limiting the import of rugs to 40 million. To this end, each country imposes a different type of trade barrier when the world price (PW)is $2,000. In Aniva, the government decides to impose a tariff of $2,000 per rug; in Kartaly, the government implements a quota of 40 million rugs.

Assume that Aniva and Kartaly have identical domestic demand (D0) and supply (S) curves for rugs as shown on the following graph. Under these conditions, the price of rugs is $4,000 per rug in each country.

Screen Shot 2019-10-15 at 4.11.46 AM.png

Suppose that in both countries, demand for rugs rises from D0 to D1.

Assuming Aniva keeps the tariff at $2,000 per rug, complete the first row of the following table by calculating each of the values given this increase in demand. Assuming Kartaly maintains a quota of 40 million rugs, complete the second row of the table by calculating each of the values given this increase in demand.

Screen Shot 2019-10-15 at 4.12.47 AM.png

Which of the following explain why a tariff is a (less or more) ___________ restrictive trade barrier than an equivalent quota. Check all that apply.

  • An exporter can try to cut costs or slash profit margins.
  • A tariff prevents domestic consumers from buying imports even if they are willing to pay a higher price.
  • Importers who are able to pay the tariff duty will get the product.

Complete the following table by indicating whether each statement about domestic production subsidies and export subsidies is true or false

  • When the government makes up the difference between a guaranteed minimum price and the lower price at which farmers actually sell their crop, this is a domestic production subsidy. (true or false)
  • When the government provides a subsidy to farmers for every ton of wheat produced, this is an export subsidy. true or false)
  • A country's domestic production subsidies have more impact on other countries than do its export subsidies.(true or false)

Screen Shot 2019-10-15 at 4.11.46 AM.png

Screen Shot 2019-10-15 at 4.12.47 AM.png

Quantity Demanded at New Price
(Millions of rugs)
( Millions of rugs)
Aniva (tariff = $2,000)
Kartaly (quota = 40 million rugs)
True or False: The increase in demand helps both domestic producers and consumers in Kartaly.

Top Answer

Aniva has kept the tariff at $2,000. So, with increase in demand, prices in Aniva has remained at $4,000 per rug. With... View the full answer


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