Download The effects of a tariff (numerical example)

The effects of a tariff
(numerical example)
Nikola Spustová
Monika Tibenská
A tariff:
• raises the price of a good in the importing
country
 lowers it in the exporting country
Consumers:
 lose in the importing country
 gain in the exporting country
Producers:
 gain in the importing country
 lose in the exporting country
Trade in COTTON
Home country:
D=150-30P
S=30+10P
Foreign country:
D*=100-40P*
S*=20+40P*
Problem 1

Derive and graph Home’s import demand
schedule.

What would the price of cotton be in the
absence of trade?
Problem 2

Derive and graph Foreign’s export supply
curve

What price of cotton that would prevail in
Foreign in the absence of trade?
Suppose that Foreign and Home trade with
each other, at zero transportation cost.

Find and graph the equilibrium under free
trade. What is the world price and the
volume of trade?
Problem 3
Home imposes a specific tariff of 0.5 on
cotton imports.
Determine and graph the effects of the
tariff on the following:
a) the price of cotton in each country
b) the quantity of cotton supplied and
demanded in each country
c) the volume of trade.

Problem 4

Show graphically and calculate:
the terms of trade gain
b) the efficiency loss
c) the total effect on welfare of the tariff.
a)
Thank you for attention!