Question

In: Economics

. Show and explain the large nation case of Country 1, which initially has a tariff...

. Show and explain the large nation case of Country 1, which initially has a tariff on its imports of Good Z and later eliminates its tariff on Good Z.

(a) For Country 1 graphically show and label the change in (i) domestic producer surplus, (ii) domestic consumer surplus, (iii) domestic government tax revenue, and (v) domestic net total change. [Use a large graph!]

(b) What happens to the net import price of Good Z for Country 1 given the change in the tariff?

What happens to the domestic terms of trade effect area for Country 1 as a result?

Solutions

Expert Solution

a).

Consider the following fig.

So, here “D” be the demand and “S” be the supply curve. Now, initially a tariff of amount “t” was imposed, => the home price and the foreign price under tariff is given by, “P1”and “P2” respectively, where “P1-P2=t”. Now, at “P=P1” the corresponding demand and supply are given by “D1” and “S1”. Now, if the tariff is eliminated, => the world price is given by “Pw” in both the country, => as the “P” decreases from “P1” to “Pw”, => the consumer surplus increases by the area “a+b+c+d” and the producer surplus decreases by “a”. Now, initially the government’s tariff revenue was “c+e”, now under free trade it reduces to “0”. So, the “net change in the welfare” is given by.

=> dW = d(CS) + d(PS) + d(tariff revenue), => dW = (a+b+c+d) + (-a) + (-c-e) , => dW = (b + d) + (-e).

=> dW = (b+d-e).

b).

As the tariff eliminated implied the import price decrease from “P1” to “Pw”. Now, the terms of trade area is given by “b+d-e”. Now, because it is a large country, => for a large country the terms of trade effect is positive of a tariff. So, here as the tariff decreases TOT effect is negative, => “b+d-e < 0”.


Related Solutions

. Show and explain the large nation case of Country 1, which initially has a tariff...
. Show and explain the large nation case of Country 1, which initially has a tariff on its imports of Good Z and later eliminates its tariff on Good Z. (a) For Country 1 graphically show and label the change in (i) domestic producer surplus, (ii) domestic consumer surplus, (iii) domestic government tax revenue, and (v) domestic net total change. [Use a large graph!] (b) What happens to the net import price of Good Z for Country 1 given the...
Show and explain the case where the small nation Country 1 imports Good A. Initially it...
Show and explain the case where the small nation Country 1 imports Good A. Initially it has an import tariff on Good A, then it eliminates the tariff. Depict this graphically. [Be sure to label the axes and curves of your graph. Label the appropriate surplus areas with letters.] (a) When the country changes from having a tariff to no tariff, what happens to (i) producer surplus, (ii) consumer surplus, (iii) deadweight loss, and (iv) government tariff revenue? (Describe the...
Explain the general equilibrium analysis of a Tariff in large country by the use of the...
Explain the general equilibrium analysis of a Tariff in large country by the use of the free trade offer curves: a) Illustrate the effects of tariff in a large country b) What is the meaning of the optimum tariff and retaliation
Explain the impact of a tariff in a large country on the domestic price, domestic producers,...
Explain the impact of a tariff in a large country on the domestic price, domestic producers, consumers, government, and the economy overall. How do these results compare to a small country?
QUESTION 14 The imposition of an import tariff by a large nation a. Leaves the nation’s...
QUESTION 14 The imposition of an import tariff by a large nation a. Leaves the nation’s welfare unchanged. b. Reduces the nation’s welfare. c. Allows for any of the cited possibilities d. Increases the nation’s welfare. QUESTION 15 The 1934 Reciprocal Trade Agreements Act a. enabled the U.S. Congress to lower tariffs by up to 50 percent. b. was enacted to reverse the damage caused by the Smoot-Hawley tariff. c. enabled the United States to lower tariffs on a statutory...
Explain, using offer curves, how a tariff affects a large country in the context of general...
Explain, using offer curves, how a tariff affects a large country in the context of general equilibrium. Can a tariff improve the welfare in the tariff-imposing country if both sets of offer curves are elastic in the relevant ranges? Explain.
If a tariff is imposed by a country that is large enough to have market power...
If a tariff is imposed by a country that is large enough to have market power in global markets, the domestic consumer will face a domestic price ________ than the world price for the product, and this world price will be ________ by the tariff.
Suppose we have a large country that seeks to impose a tariff on products in the...
Suppose we have a large country that seeks to impose a tariff on products in the hopes of achieving a welfare gain as well as provide protection for its domestic industry. If the elasticity of export supply function is 0.04. First what is the optimal tariff that can be imposed that would provide for such welfare improvements? Second, in practice why might this country not find it optimal to implement this tariff?
Evaluate the following statement: “the tariff imposed by a large country brings a net gain to...
Evaluate the following statement: “the tariff imposed by a large country brings a net gain to the whole world.” Need answer in 200-250 words.  
*** working with theory of Import tariffs Consider a large country applying a tariff t to...
*** working with theory of Import tariffs Consider a large country applying a tariff t to imports of a good. (a) Draw the Home market and World market supply-demand diagram. Clearly label the amount of import in the free trade equilibrium and equilibrium with a tariff. (b) How does the export supply curve in world market compare with that in the small country case? Explain briefly why they are different. (c) Explain how the tariff affects the price paid by...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT