Problem_Set_8_Tariffs_with_imperfect_competition
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AP/ECON3150International Trade
Problem set9
Problem1
Consider a small Home country trading computers with a large Foreign country.There are no…rms producing computers at Home,while Foreign market is monopolized.the graph below shows Home country demand for computers D M and marginal cost curve for Foreign monopolist MC .
Price
a.Suppose Home government decided to implement an import tari¤of $t on foreign computers.From the above diagram,…nd t.
b.How does this tari¤a¤ect consumer surplus,tari¤revenue,and na-tional welfare?Calculate.
c.Calculate Home country terms-of trade loss/gain and deadweight loss from the tari¤.
Problem2
Suppose a small country(Home)want to build up its own motorcycle production.Currently,it has a single small domestic…rm with annual output of1000and also imports5;000of them annually at the world market price of $25;000.The Home country government have decided to temporarily restrict
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imports of motorcycles to give the local producer some time to grow and learn e¢cient production technologies.
ing‘infant industry protection’argument,is it better for Home country government to use a tari¤or a quota,and why?
b.To stimulate domestic production of motorcycles,Home country in-troduced a tari¤of100%of the imported price,and as a result the volume of imports fell to2;000motorcycles per year.Calculate the e¤ect of this protectionist policy on country’s welfare.
c.After…ve years of protection,import tari¤s were remove
d.Once free trade was restored,Home motorcycle manufacturer was capable of producing 4;000units a year at the marginal costs of$20;000(remember that the coun-try is small).However,due to low consumer preferences for local motorcycles, the entire industry went bankrupt in ten years.Calculate the e¤ectiveness of‘infant industry protection’.
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