Question

Domestic supply of pomelos is QS=(1/2)P while domestic demand is QD=12-P. There is also a world price of $2. First, create a useful and well-labeled sketch.

A. How many pomelos will be imported given free trade?

B. What will be the deadweight loss given an import tariff of $3 per pomelo?

C. What tariff would completely prevent any pomelo imports?

D. What if instead of a $3 tariff, the government allowed free trade but imposed a tax of $3 per pomelo. Note that a tax is on all pomelos, while a tariff is only on imported pomelos. What would be the deadweight loss of this tax? [Please think about the difference here. Why is it that the tariff leads to a higher deadweight loss? You do not have to write an answer, but you are encouraged to think about the difference.]

Answer 1

Is equal to 10-1=9

AREA OF A+B=1/2(1.5))3)+1/2(3)(3)=2.25+4.5=6.75

Tariff of 8-2=6

AREA A+b+D. It rises because due to higher costs of even domestic production