Question consider a 2 countries a and b 2 goods cars and, Ask an Expert

Economics

Question: Consider a 2 countries (A and B), 2 goods (cars and tech) setup. Suppose that Country A exports cars.

(a) Suppose that Country A imposes a tariff on imports; show graphically what happens to the terms of trade PT PC .

(b) Suppose that Country A imposes a tariff on imports; is Country A necessarily worse off? Explain, using a graph, what the costs and benefits of a tariff for Country A are.

(c) Suppose that Country A imposes a tariff on imports, and Country B retaliates. Illustrate graphically a scenario in which the terms of trade PT PC grow in equilibrium. Is this a favorable movement of the terms of trade for Country B? Why?

( d) Suppose that Country A imposes a tariff on imports, and Country B retaliates. Illustrate graphically a scenario in which the terms of trade PT PC fall in equilibrium. Is this a favorable movement of the terms of trade for Country B? Why?

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Microeconomics, Economics

Category:- Microeconomics
Reference No.:- M92587201

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