Question

Question 1: The local hairdresser industry has the structure of monopolistic competition. Your hairdresser boasts that he is making a profit and that if he continues to do so, he will be able to retire in five years. Use a diagram to illustrate your hairdresser’s current situation. Do you expect this situation to last? Explain your rationale.

Question 2: Assuming that the free-trade equilibrium is efficient, who gains from the imposition of a tariff on imported goods? Who loses because of the tariff? Is the net effect positive, negative or do the gains equal the losses?

Question 3: Externalities and Public Goods…

A- What are the two characteristics of public goods?

B- Assuming that the marginal social cost of an economic activity exceeds the marginal private cost but the marginal social benefit of the activity is equal to the marginal private benefit. In this situation, is there a positive or negative externality? How do you know?

Answer 1

net effect is positive because when domestic industro faces competition from foreign industries then tariffs plays very significant role .it raises the tariff of imported goods so that demand is low .an ultimately people buy domestic goods