Question Econ 325 Homework 3 Total= 100 points QUESTION 1 ( 60 Points )

04 Jun Question Econ 325 Homework 3 Total= 100 points QUESTION 1 ( 60 Points )

Question
Econ 325

Homework 3

Total= 100 points

QUESTION 1 ( 60 Points )

Answer questions below based upon the following information about country A’s market

for its importable.

Country A’s supply curve: P = 0.5Q

Country A’s demand curve: P= 40 ? 0.25Q

where P denotes price and Q denotes quantity

Suppose that country C would be willing to export the product to A for $15 per unit,

while country B, the low-cost world producer, is willing to export at a price of $10.

Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of the

product imported from countries B and C if the above tariff is imposed, respectively.

(a) Illustrate this market in country A on a demand and supply diagram. (Please show

all the intercepts). Let the lines SB and SC denote the export supply curves to A’s

market from countries B and C, respectively.

(b) Under free trade, from whom country A import this product? How many units

will it import and what will be the domestic price of this product in country A?

(c) If A imposes a per unit tariff of $10 on imports from country B, from whom will

it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Let the lines (SB + tariff) denote the domestic price of the product imported from

country B if the above tariff is imposed.

(d) If A imposes a per unit tariff of $10 on imports from country C, from whom will

it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Let the lines (SC + tariff) denote the domestic price of the product imported from

country C if the above tariff is imposed.

(e) If A imposes a per unit tariff of $10 on imports from both B and C, from whom

will it import this product? How many units will it import and what will be the

domestic price of this product in country A? Show your calculations and graph.

Similarly, let the lines (SB + tariff) and (SC + tariff) denote the domestic price of

the product imported from countries B and C if the above tariff is imposed,

respectively.

2

Section 2: (40 Points)

Multiple Choice Questions

1) ________ are quotas that lead to complete elimination of trade.

a) Embargoes

b) Voluntary export restraints

c) Non-tariff barriers

d) Orderly marketing agreements

Answer question 2-6 based on the following diagram:

2) The quotas shown in the diagram equals:

a) 200 units

b) 500 units

c) 1,000 units

d) 1,200 units

3)The quota restricts trade by the same amount as a tariff of:

a) $20

b) $30

c) $50