Suppose the domestic demand and supply curves are given by:
Demand: P=100-QD
Supply: P-10+2QS
a. Derive and graph the import demand schedule for the economy.
b. Suppose this economy is a small open economy and the world price of the good is $34. How many goods would be imported and home many goods? What is domestic production? What is domestic consumption?
c. Suppose the home country puts a $6 tariff on each good imported. What happens to domestic supply and domestic demand? How many goods are imported?
d. Calculate the welfare impact of the tariff. Show the welfare gains and losses on import demand graph?
e. Now suppose the economy is a large open economy where the export supply schedule is given P=10 + XS. What are total imports? What is domestic demand? What is domestic supply?
f. With the export supply curve given in part e, what happens to imports, domestic production and demand if the home country places a $4 tariff on each imported good?
g. What are the welfare effects of this tariff?