Question

GW7 Social welfare with tariff small country Px D-imports S-exports with tariff 200 S-exports 200 300 Qx millions 100 Qx millions Equation for inverse demand in domestic market Px = Equation for inverse supply in domestic market Px = Equation for inverse import demand in international market Px = At World price = 200, social welfare = With a 20 dollar tariff, consumer surplus = With a 20 dollar tariff, producer surplus = With a 20 dollar tariff, govt. revenue = With a 20 dollar tariff, social welfare = Producer effect with $20 tariff = Consumer effect with $20 tariff- Total dead weight loss with $20 tariff=

Answer 1

Answer to question parts (1) - (4) :

1. From the graph it can be seen that, two points on the demand curve are => (Q. , P.) = (0,500) and (92, P2) = (300, 200). Slope (m) = 200-500 - 300 - 0 equation of demand curve P - 500 = -1 (G-0) 2 P - 500 = - Q 31 Px = 500.- Q 2. Two points on the domestic supply cwrive are = (Q. , P.) = (0,0) and (Q2, P2) = (200, 200) Slope (m) = 200-0 = 1 200.- equation of supply curive -> P- PI = m(Q-61)

) P-0 (0-0) 3. Impont Demand in international market MD = Demand - Supply * MD = 500 -Q- Q | P x = 500-2Q| 4. At PW = 200, from the domestic market demand equation we get, qp = 500-200=300 and from supply equation we get, as = 200. 500 2007 OT 200 300 0 (millions) C.d = a + b = 1 / 2 x 300 x (500-200) = $ 45000 millions P. S = c = 4 x 200x200 = $20000 millions Social welfare = c.s + PiS = $(45000 + 20000 millions = $65000 millions