Elucidate the benefits and costs of this tariff

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Reference no: EM1358305

Suppose that Home imports cheese from Foreign at a world price of $9 per pound. Assume that Home is a "large" country.

(a) If Home decides to place a tariff on cheese imports such as it raises the domestic price to $16 and lowers the Foreign export price to $7, what is the impact on Home production and consumption? Show your answer also on a graph.

(b) Elucidate how are the benefits and costs of this tariff distributed among consumers and producers?

(c) What is the formula that you apply to calculate the government revenue from the tariff? Show the corresponding area on the graph you drew in (a).

(d) How would the effect of the tariff change if we assumed that Home is a "small" country?

Reference no: EM1358305

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