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Q3. The demand and supply for bikes in NZ and AUS are given by: NZ AUS...

Q3. The demand and supply for bikes in NZ and AUS are given by: NZ AUS Demand QD =100?20p QD? =70?20p? Supply QS =?20+20p QS? =?10+20p?

(a) Calculate the autarky prices for bikes in the two countries.

(b) Which country will export bikes when trade is opened and why?

(c) Calculate the equilibrium world price for bikes (setting the world demand equal to the world supply gives the world equilibrium and the equilibrium price.) Calculate the demand, supply, and exports/imports for each country.

(d) Suppose NZ sets a tariff equal to t = $.5 per unit. Calculate the new world equilibrium price for bikes. What are the new internal prices in NZ and AUS?

(e) Calculate NZ demand and supply, AUS demand and supply, and exports/imports for NZ and AUS in the equilibrium with the tariff. Illustrate.

(f) Illustrate the change in CS, PS, government revenue and total welfare in NZ. Calculate the total welfare change. Is this tariff a good idea in cost-benefit sense?

(g) Illustrate the change in CS and PS in AUS.

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