Question

2) Republic of Haha manufactures pencils. The market demand for pencils in Haha is given by Pb = 200 ? 4QD. The industry supply curve for pencils in Haha is given by PS = QS. Suppose that the world price of pencils is $20 per unit.

c) Suppose that the government decides to impose a 50% import tariff on pencils. The domestic producers decide to sell at the world price for pencils after tariff. What is the amount imported now, the 2 amount bought from the domestic sellers and the total demand for pencils ? Give numerical solutions and show how you get your answer. Hint: A tariff of 50% on the world price means that the price domestic buyers face from foreign (world) sellers is $20 + 50% × $20 = $20 + $10 = $30. This is also the ”world price for pencils after tariffs”

Answer 1