Reference no: EM133302374

Part 1.

Canada, a small open economy it has an import tariff currently in place in the market for Apples. Suppose Canada's Demand curve increases.

1. On one graph, demonstrate the areas that represent any changes in consumer surplus and producer surplus from before to after the demand increase.

2. On a separate graph, demonstrate any change in tariff revenue collected.

Part 2.

Suppose that Foreign initially has an identical supply and demand as Canada (after Canadas demand increases), meaning Foreign's autarky price is identical to Canadas. Foreign also has the same size tariff in place as Canada. Then suppose that Foreign's supply curve becomes more inelastic than Canadas, but retains the same autarky price.

3. Accurately draw two graphs to demonstrate the Apple markets in Home(canada) and Foreign. Will Foreign have more imports or fewer imports than Home? Demonstrate this on your graph.

4. Re-draw your graphs from part c and demonstrate the consumer surplus, producer surplus and tariff revenue for both countries.

5. Using your answers from part d), which country has more consumer surplus? Which has more producer surplus? Which collects more tariff revenue?

6. Which country has more deadweight loss from the tariff?