Reference no: EM13691198
Large country case
The following two equations represent the demand and supply schedules of motorbikes for Country A.
QD = 90 - 1 P P: Price/bike 40
QS = -10 + 1 P Q: measured in millions units
Suppose country A is large enough to affect the world price of motorbike and therefore it faces an upward-sloping supply curve from the rest of world (ROW). The supply curve of the ROW is shown as follows,
P = 700 + 6QEX
If a specific tariff of $130 is imposed per unit of the imported bike, then a) What is the motorbike price paid by consumers from country A?
b) What is the motorbike price received by producers from the ROW?
c) Who pays the tariff? How much do they pay, respectively?
d) How large is the deadweight loss to country A?
e) How large is the optimal tariff rate?
f) (Optional) Find the amount of tariff born by the ROW and the size of domestic deadweight loss given the optimal tariff rate you find in part (e).
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