Question

2. Consider a large country applying a tariff, t, to imports of a good like that represented in the below figure. (a) Home Market (b) World Market Price Price S X* + t A No-trade equilibrium b + d C P* + t a c b Pw P* d B* X* C* D M S1 S2 D2 D1 Quantity M2 M1 Imports a. How does the export supply curve in panel (b) compare with that in the small country case? Explain why these are different. b. Explain how the tariff affects the price paid by consumers in the importing country, and the price received by producers in the exporting country. Use graphs to illustrate how these prices are affected if (i) the export supply curve is more elastic, or (ii) the export supply curve is more inelastic. c. How does the size of the terms-of-trade/strategic gain compare with the size of the efficiency loss when (i) the tariff is very small, and (ii) the tariff is very large? Use graphs to illustrate your answer.

          2. Consider a large country applying a tariff, t, to imports of a good like that represented in the below figure.

(a) Home Market
(b) World Market
Price
Price
S
X* + t
A
No-trade equilibrium
b + d
C
P* + t
a
c
b
Pw
P*
d
B*
X*
C*
D
M
S1 S2 D2 D1 Quantity
M2 M1
Imports

a. How does the export supply curve in panel (b) compare with that in the small country case? Explain why these are different.

b. Explain how the tariff affects the price paid by consumers in the importing country, and the price received by producers in the exporting country. Use graphs to illustrate how these prices are affected if (i) the export supply curve is more elastic, or (ii) the export supply curve is more inelastic.

c. How does the size of the terms-of-trade/strategic gain compare with the size of the efficiency loss when (i) the tariff is very small, and (ii) the tariff is very large? Use graphs to illustrate your answer.

2. Consider a large country applying a tariff, t, to imports of a good like that represented in the below figure.

(a) Home Market
(b) World Market
Price
Price
S
X* + t
A
No-trade equilibrium
b + d
C
P* + t
a
c
b
Pw
P*
d
B*
X*
C*
D
M
S1 S2 D2 D1 Quantity
M2 M1
Imports

a. How does the export supply curve in panel (b) compare with that in the small country case? Explain why these are different.

b. Explain how the tariff affects the price paid by consumers in the importing country, and the price received by producers in the exporting country. Use graphs to illustrate how these prices are affected if (i) the export supply curve is more elastic, or (ii) the export supply curve is more inelastic.

c. How does the size of the terms-of-trade/strategic gain compare with the size of the efficiency loss when (i) the tariff is very small, and (ii) the tariff is very large? Use graphs to illustrate your answer.

Added by Nathan F.

Question

Please give Ace some feedback