Question

I ONLY NEED #2 PLEASE

1. The following equations represent a small country's home supply and demand curves for widgets: S = 0 + 2P and D = 1,000 – 2P.

A) Find the equilibrium price and quantity for widgets in autarky.

B) Now let the world price be $200. Find domestic production, domestic consumption, and the amount of imports.

C) Derive the country's import demand curve (equation) for widgets.

D) Let the country impose a 10% tariff. Calculate its deadweight losses (i.e. area b+d). (Hint: Use the import demand equation, its much simpler with that)

E) Calculate Government Revenue from this Tariff (i.e. area c)

2. Suppose a country was looking to replicate the results (quantity of imports) from question 1. above using quotas instead of tariffs

A) What will be the quota on widget imports?

B) What would be the deadweight loss if the country sold quota licenses to importing firms who did not engage in rent seeking activities?

C) What would be the deadweight loss if the country sold quota licenses to importing firms who instead engaged in rent seeking activities?

D) What would be the deadweight loss if the country perfectly auctioned quota licenses to importing firms?

E) From answers B through D, which method would you recommend to this country and why?

Answer 1

Answer: 1)