Reference no: EM131220104
Suppose that policymakers eliminate tariffs on imported pharmacuetuials. For a specific drug, the tariff orginally was $0.60 per unit, and the domestic price with the tariff in place was $2.90. Now, under free trade, the domestic price is $2.50. With the tariff, the domestic quantity demanded was 14 million units, and the domestic quantity supplied was 6 million. Now, under free trade, the domestic quantity demanded is 20 million, and the domestic quantity supplied is 4 million.
(a) Is the country in question a large country or small country? Explain your answer.
(b) Draw diagram that illstrate this example in a supply-and-demand framework for the home country and the international market.
(c) What is the value of the gain to the domestic consumers due to the removal of the tariff?
(d) What is the value of the loss to the domestic producers due to the removal of the tariff?
(e) What is the value of the loss of tariff revenue due to the removal of the tariff?
(f) Does the home country experience a net welfare gain or loss from the removal of the tariff?
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