A small country imports a product with a world price of $9. The domestic industr
ID: 1254425 • Letter: A
Question
A small country imports a product with a world price of $9. The domestic industry is composed of numerous small firms who together have a supply function Q = 2P/3. The domestic demand function is Q = 40 – 2P. There is a tariff of $3 per unit.
a.With this tariff in place, what are domestic consumption, production, imports, price, and tariff revenues.
b.If the tariff is eliminated, what will be domestic consumption, production, imports, price?
c.How much will consumer and producer surplus and deadweight loss change if the tariff is eliminated?
d.If a quota is substituted for the $3 tariff, what size quota will leave prices unchanged?
e.Draw and label a diagram that shows prices and quantities.
Explanation / Answer
this too long