The effects of a tariff (numerical example) Nikola Spustová Monika Tibenská

A tariff: raises the price of a good in the importing country lowers it in the exporting country Consumers: lose in the importing country gain in the exporting country Producers: gain in the importing country lose in the exporting country

Trade in COTTON Trade in COTTON Home country: D=150-30P S=30+10P Foreign country: D*=100-40P* S*=20+40P*

Problem 1 Derive and graph Home’s import demand schedule. What would the price of cotton be in the absence of trade?

Problem 2 Derive and graph Foreign’s export supply curve What price of cotton that would prevail in Foreign in the absence of trade? Suppose that Foreign and Home trade with each other, at zero transportation cost. Find and graph the equilibrium under free trade. What is the world price and the volume of trade?

Problem 3 Home imposes a specific tariff of 0.5 on cotton imports. Determine and graph the effects of the tariff on the following: a) the price of cotton in each country b) the quantity of cotton supplied and demanded in each country c) the volume of trade.

Problem 4 Show graphically and calculate: a) the terms of trade gain b) the efficiency loss c) the total effect on welfare of the tariff.

Thank you for attention!