Reference no: EM13158625

Now, assume that the U.S. is a large country in this market, with the same supply and demand equations given in Part II above.  Also assume that supply and demand equations in the rest of the world are:

Q^S_ROW = 20 P_ROW

Q^D_ROW = 90 - 10 P_ROW

1. Before trades opens up with the U.S., what are the equilibrium price and quantity in the rest of the world?

2. If trade opens up with the U.S., and no tariff, what will be the world price of this good?

3. What will be the quantity of imports into the U.S. (and exports from the rest of the world)?

4. Now suppose the U.S.-as a large country-puts a $1 tariff on this good.  What will be:

a. the equilibrium price (P) in the U.S.?

b. the equilibrium price (P_ROW) in the rest of the world?

c. the equilibrium quantity of imports into the U.S. (and exports from the rest of the world)?

5. What is total U.S. government revenue from the tariff?

6. What is the total dollar value of the change in welfare in the United States caused by the tariff? State whether the U.S. gets a welfare gain or suffers a welfare loss from the tariff.

7. What is the total dollar value of the change in welfare in the ROW caused by the tariff? State whether the ROW gets a welfare gain or suffers a welfare loss from the tariff.