Find producer surplus in the absence of trade

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Reference no: EM131478920

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

1819_Home 1.png

740_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: EM131478920

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