The small nation of Tulipinia does not allow flowers to be imported. In its equilibrium without...
The small nation of Tulipinia does not allow flowers to be imported. In its equilibrium without trade, tulips cost $3 and the equilibrium quantity is 500,000 tulips. After thousands of Tulipinians complain to the government about not being able to get cheap tulips from abroad, the government decides to allow free trade with other countries. The world price of tulips is $1.50 and the number of tulips purchased in Tulipinia increases to 1.2 million, while the number of tulips harvested in Tulipinia declines to 200,000.
a. Illustrate the situation just described in a graph (be sure to show all the numbers). How many goods are imported after trade is allowed?
b. If a $1.50 tariff is imposed, how many goods are imported, how much government revenue is collected, what is the deadweight loss, and what is the change in consumer surplus?
c. Is the policy from part b good from the standpoint of economic efficiency? Explain. Who might support this policy? Explain.
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The small nation of Tulipinia does not allow flowers to be
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