week 7

Question 1

what is a large country

Answer 1

a country whose trading and trade-policy behaviour affects the world-market price(P*)

Question 2

what us the intuition of a large country imposing a tariff

Answer 2

tariff drives a wedge between the domestic home price and the ROW price

P =P* +T

Question 3

what is the general effect when a country impose a tariff( large and small)

Answer 3

tariff will have the initial effect of increasing the domestic price and decreasing import demand

Question 4

when a large country imposes a tariff what is the effect

Answer 4

the fall in important demand will be SIGNIFICANT in size relative to the world market

price in ROW will decrease –> demand from large country would have decreased

part of tariff incidence falls on exporting firms in ROW –> export price would decrease

Question 5

draw the free trade of a large importer:

Answer 5

look at notes

Question 6

large country diagram: ROW and ROW supply of exports

Answer 6

lhome no longer faces per-elastic supply of X

Question 7

draw the large country diagram: home world and row

Answer 7

notes

Question 8

what are the welfare effects of a specific tariff of t: for home

Answer 8

Home:
1. price increase from Pft to Pt
2. consumer surplus will decrease by A+B+C+D
3. PS increases by A
netloss= B+D-E

results:
home gains overall if netloss<0 where E> B+D

Question 9

what is ‘e’ in the large country diagram

Answer 9

tariff revenue collected at the expense of foreign exporting firms

(Pft-Pt)Mt

Question 10

how likely is Home going to benefit from a tariff

Answer 10

dependant on how inelastic is the supply of X from row

- would they retaliate

Question 11

what are the welfare effects in ROW(exporters): large country with tariffs

Answer 11

P* decrease from Pft to Pt
CS increases by F
PS decreases by F+G+E+H

net loss to ROW= G+E+H
net loss of (home and ROW)
b+d+g+h