Assume a large world economy with several countries

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Reference no: EM13980975

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 Dw1= 500-25P And Sw1 = 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 a $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?

Reference no: EM13980975

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