International Finance

timer Asked: Dec 7th, 2015

Question description

Assume a large world economy with several countries. There is a good that can be produced domestically by every country in the absence of trade. Suppose Country 1 has the following demand and supply curves for this good: D1 = 28 − 2P and S1 = 2P − 4. For the rest of the world (without Country 1) demand and supply curves are Dw−1 = 500 − 25P and Sw−1 = 100P . Answer the following questions (where necessary, round to two decimal places). (a)  If Country 1 initially does not trade with the rest of the world, what are its equilibrium price and quantity? (b)  Find consumer surplus for Country 1 when it does not trade. (c)  Show why Country 1 will become an importer of the good, once we allow international trade. (d)  With free international trade what are the world price and quantity Country 1 imports? (e)  After intensive lobbying efforts domestic producers in Country 1 get some protection in a form of $1.00 tariff. What are the domestic price in Country 1 and price on the world market? (f)  How do imports of Country 1 change? By how much? (g)  By how much does consumer surplus change as a result of tariff? (h)  What is the net effect of the tariff on Country 1? (i)  Would you recommend for Country 1 to repeal the tariff? Why or why not? 

Tutor Answer

(Top Tutor) Studypool Tutor
School: UT Austin
Studypool has helped 1,244,100 students
flag Report DMCA
Similar Questions
Hot Questions
Related Tags

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors