Econ Problems

TRADE INTERVENTION

Econ Problems 1

Please use the graph above for the following questions. Suppose a small country imposes a tariff of $5. The world price is $50.
1. Domestic consumption falls from Q4 to Q3. What is the loss of consumer surplus associated with this drop in consumption?
2. Domestic production increases from Q1 to Q2. What is the loss of consumer surplus associated with this switch from foreign to domestic production?
3. Government revenue increases by how much?
4. What is the change in consumer surplus?

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DO NOT USE THIS SPACE FOR YOUR ANSWER. TURN IN THE SEPARATE SHEET TO YOUR TA FOUND AT THE END OF THIS DOCUMENT

Please use the following graph for the following three questions.

The free trade world price is Pw. Let Pw = 100, P2 = 90 and P3 = 110

The country is small in world markets for its export good. Note that on an exam you might be expected to explain all of these effects in a sentence or two.

Econ Problems 2

Suppose that the government of this small country imposes an export tax. Identify the following using the areas defined on the graph that would be consistent with this scenario:
1. Change in domestic producer surplus
2. Change in domestic consumer surplus
3. Change in government revenue
4. Net welfare change
Suppose that the government of this small country introduces an export subsidy instead. Once again, the world price is Pw. Identify the following using the areas defined on the graph consistent with this scenario:
1. Change in domestic producer surplus
2. Change in domestic consumer surplus
3. Change in government revenue
4. Net welfare change

Suppose that the government of a LARGE COUNTRY introduces an export TAX. Once again, the initial world price is Pw though it will change with the tax. Identify the following using the areas defined on the graph consistent with this scenario:
1. Change in domestic producer surplus
2. Change in domestic consumer surplus
3. Change in government revenue
4. Net welfare change

TRADE INTERVENTION

ANSWER SHEET

Name:

1. a.	1. b.	1. c.	1. d.
2. a.	2. b.	2. c.	2. d.
3. a.	3. b.	3. c.	3. d.
4. a.	4. b.	4. c.	4. d.