A small country can import a good at a world price of 20 per unit. The domestic supply and demand curve of the good is S = 8 + 2P D = 80 − P
a) Derive and graph Home’s import demand schedule.
b) Home imposes a specific tariff of 1 per unit levied on a good. Determine and graph the effects of the tariff on the following: (1) the price of a good, (2) the quantity supplied and demanded, (3) the volume of trade.
c) Show graphically and calculate the efficiency loss, government revenue and the net welfare effect of the tariff (Hint: show the change in CS and PS).
d) Each unity of production yields a marginal social benefit of 4. Calculate the total effect on welfare of a tariff (Hint: total effect = net welfare effect + social effect).