Question

) The home country is small and imports at the equilibrium world price of $3. The home country has the following domestic demand and supply curves for cars: Demand: Qd=1000 – 100P Supply: QS=100P -200 a. (6 points) Draw two graphs, one for home country and one for the world market with the appropriate (labeled) curves. Under the scenario of free trade, calculate and label the following in the appropriate places: (1) home country no-trade (autarky) price; (2) import demand curve in the world market; (3) the number of cars produced by home country’s producers; (4) the number of cars consumed in home country; (5) the number of imports for home country. b. (6 points) Imagine that home country institutes a tariff of $2 per cars. Calculate and label (on your previous graphs) the following in the appropriate places AFTER the tariff is imposed: (1) price paid by the home country consumers; (2) the number of cars produced by home country’s producers; (3) the number of cars consumed in home country; (4) the number of imports for home country. c. (4 points) Calculate the deadweight loss due to the tariff and label the area on both graphs (home graph and world market graph) that represents it. d. (4 points) Calculate the tariff revenue and label the area on both graphs (home graph and world market graph) that represents it.

Answer 1