Assignment:
Essay Questions:
1. Consider an importing country with an import demand function given by p=120-q, which faces an export supply function of p=2q. The government decides to impose a tariff of $3 per units of imports.
a. Calculate the domestic price and consumption before after the Imposition of tariff.
b. What is the world price of the imports before and after the imposition of the tariff?
c. Does this country benefit from the imposition of tariffs? By how much?
2. WTO had a tariffication.process through which countries substituted their import quotas with tariffs. That is because economists usually think that an import quota is more inefficient for the global economy than an import tariff. Why is import quota more inefficient? Using two real-world examples, explain some unintended (and undesirable) consequences of quotas.
3. The discovery of a large natural gas reserve in the Persian Gulf in late 1990s attracted foreign investments for the development of this field on the southern coast of Iran. As a result, many high paying jobs were created for engineers. At the same time, the manufacturing industries in Iran experienced a downturn. Using a medium-run model with two goods (Gas and Manufacturing), explain why the manufactring sector contracted soon after the discovery of the gas reserve. Use the appropriate diagrams and label all the axes and curves.
4. Neverlandia isa small country with a single firm in the Gadget industry. The demand for Gadget in Neverlandia is given by P = 210- 2Q, The firm's cost function is given by: C = 0.502+ 10Q+ 100. (P is the price of Gadget and Q is the quantity.)
Currently, the imports of Gadgets to Neverlandia are prohibited and, as a result, the Gadget producer in Neverlandia is a monopolist.
a) Calculate the profits of the monopolist.
b) The government is now contemplating liberalizing trade in Gadgets, in whiCh case the Gadget producer would lose its monopoly power and the price of Gadgets would fall to the $100 (the world price). How much profit does this firm lose if the ban on imports are removed?