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L4 Ess Ie

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13 views2 pages

L4 Ess Ie

Uploaded by

phuonghuyenlinhnguyen
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© © All Rights Reserved
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Problems (Lecture 4)

1. What are the tariffs and different types of tariffs?


2. How does tariff affect domestic prices, consumption, production, and
trade?
3. What are the costs of protection? Use the graph of partial equilibrium
analysis to show the cost of protection and its nature in a small
economy.
4. Although protection through tariff and non-tariff barriers is costly to the
economy as the whole, various trade barriers have been employed by
both developing and developed countries. Discuss this.
5. The following table gives the data on the production and consumption
of steel. Domestic production and consumption in free trade is shown
in Column 2. Column 3 shows the domestic production and
consumption when a tariff of 100% is imposed on imported steel.
Suppose the world price is $2000 per ton in free trade and are not
affected by the tariff.
Free trade Tariff of 100%
Domestic output (1000 tons) 650 700
Domestic consumption (1000 850 800
tons)
a. Calculate the quantity of imports, with and without tariffs.
Without tariffs: x
b. Calculate the changes in consumer surplus and producer surplus, the
revenue effect, and the welfare loss resulting from the tariff.

6. A small nation has the following supply and demand schedules for rice;
QS = 50 + 20P
QD = 550 - 80P

1
The world price is 1 million dollars per ton . In the production and
consumption functions, output is measured in 1000 tons, and price is
measured in 1 million dollars.
a. Calculate the domestic price, output, consumption in autarky.
b. Calculate domestic price, domestic output, consumption, and imports
in free trade.
c. Suppose the nation imposes a 100% tariff on imported rice. Calculate
the change in producers and consumer surpluses and the welfare
effect.
7. Given the information in problem 6, calculate the ad valorem and
specific prohibitive tariffs.
Specific prohibitive tariff: 5-1 = 4
Ad valorem prohibitive tariff: 4/1 = 400%
8. Suppose the tariff imposed on TV set is 20%, and imported
components and parts account for 60% of the value of domestically
produced TVs. Calculate the rate of effective protection for domestic
TVs when
a. The tariff on imported parts and components is 10%.
b. The tariff on imported parts and components is reduced to 0%.
Compare the result with a) and explain the change in the rate of
effective protection.

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