Calculate home consumer surplus and producer surplus

Reference no: EM131478909

Question: Refer to the graphs in Problem. Suppose that instead of a tariff, Home applies an import quota limiting the amount Foreign can sell to 2 units.

a. Determine the net effect of the import quota on the Home economy if the quota licenses are allocated to local producers.

b. Calculate the net effect of the import quota on Home welfare if the quota rents are earned by Foreign exporters.

c. How do your answers to parts (a) and (b) compare with part (c) of Problem?

Problem: Suppose Home is a small country. Use the graphs below to answer the questions.

222_Home 1.png

2117_Home 2.png

a. Calculate Home consumer surplus and producer surplus in the absence of trade.

b. Now suppose that Home engages in trade and faces the world price, P* = $6. Determine the consumer and producer surplus under free trade. Does Home benefit from trade? Explain.

c. Concerned about the welfare of the local producers, the Home government imposes a tariff in the amount of $2 (i.e., t = $2). Determine the net effect of the tariff on the Home economy.

Reference no: EM131478909

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