Reference no: EM132401186
Question 1.
Assume that in Colombia the market for skateboards is determined by the following domestic supply and demand curves.
Pd= 30 - (1/2)qd
Ps= 2qs
Furthermore, assume that the world supply for skateboards is determined by the following function:
P = q
A. Under the free trade scenario what amount of skateboards will be bought in Colombia, and what amount of skateboards will be produced in Colombia?
20 will be consumed in Colombia, while 10 will be produced in Colombia
Now assume that Colombia wants to protect the local skateboard industry so they place a $6 tariff on imported skateboards.
B. What is the number of skateboards that will be imported after the tariff is put in place?
After the tariff is put into place there will be 5 skateboards imported at a price of $22.
C. What is the numerical value of the consumption effect? What about the Protective effect?
Consumption Effect = 4, Protective Effect = 1
D. Is Colombia better off or worse off after the tariff is put into place, prove numerically or logically.
In terms of Total Social Welfare they are better off, they lose 5 but gain 20; so TSW increases.
E. Why are the Consumption and Protective effects different? (Explain this from either a theoretical or mathematical perspective, and be sure to include why one effect is larger than the other. Two to three sentences should work here)
The elasticity of domestic Consumers is different from the elasticity of domestic producers so each party reacts to the price change differently.