Use the following diagram of the widget market in a small country to answer the following questions
1.If the free trade price of widgets is $10, how many widgets will this country import? How many will domestic producers produce?
2.Suppose that this country imposes a $30 tariff on widgets. How many widgets will this country import? How many will domestic producers produce?
3.Suppose instead that this country imposes a quota of 6 units. What will happen to the market price for widgets? How many widgets will this country import? How many will domestic producers produce?
4.Considering the situation in part c, shade the area of lost consumer surplus. Which part is transferred to domestic producers? Which part is transferred to the foreign firm (or the importer) as quota rent? Which part is deadweight loss?
5.Explain why trade barriers are inefficient. If they are so bad, why do countries use them all the time?
This question was answered on: Dec 18, 2020
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Dec 18, 2020EXPERT
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