Home’s demand curve for bananas is D = 100 – 2P and its supply curve for...

Home’s demand curve for bananas is D = 100 – 2P and its supply curve for bananas is S = 20 + 2P. Home is one of the largest banana importers in the world. When trade opens up, Home’s import demand curve is MD = 90 – 5P and it faces an export supply curve given by XS = 5P – 10. (6)

A) With free trade, determine the equilibrium price and trade volume

B)) Now Home imposes an ad valorem tariff of 20% on banana imports. Determine the new trade volume and the new world price under the tariff. How do you think Home’s welfare has changed? Drawing a diagram showing free trade and tariffs would be helpful.

Expert Solution

Rahul Sunny answered 1 year ago

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