Problem #2: $2.50F 2.00.F. Use the diagram on the right to answer the following
ID: 1111762 • Letter: P
Question
Problem #2: $2.50F 2.00.F. Use the diagram on the right to answer the following questions. Suppose that the autarky price of commodity X is $1.50 in Nation A, $1.00 in Nation B, and $0.50 in Nation C and that Nation A is too small to affect prices in Nation B or C by trading. If Nation A initially imposes a nondiscriminatory ad valorem tariff of 100 percent on its imports of commodity X from Nations B and C. 1.50 .50F sof---- D. Q a. Nation A will import some of commodity X from which nation? b. How much will Nation A consume of commodity X? 100 200 300 400 500 c. How much tax revenue will Nation A collect? How much of Commodity X will Nation A produce domestically? .Explanation / Answer
Answer - Domestic demand and supply of commodity X is given in nation A. Autarky price in nation A is $1.50. Nation A is too small to affect price market price. Price in nation B is $1.00 and in nation C is $0.50. Nation A imposed non discriminatory ad valorem tariff of 100 % on its import. It caused rise in price in nation B and nation C. After 100% tariff price become $2.00 in nation B and $1.00 in nation C.
(a) Price in nation A is $1.50. Thus nation will import commodity X from that nation which has lower price. After tariff nation C has lower price ($1.00). Thus nation A will import from nation C.
(b) Nation A produce 200 units of commodity X and imports 200 units from nation C at price $1.00. Quantity demanded at in nation A at price $1.00 is 400 units. Thus nation A consumes 400 units at price $1.00.
(c) Since nation A imports 200 units from nation C. Tariff value on nation C' imports is $0.50 per unit. Thus tax revenue that government collect = 0.50 * 200
Tax revenue = $100
(d) Nation A will produce 200 units at price $1.00 of commodity X. At this price quantity demanded is greater than quantity supplied in nation A. 200 units are produced domestically and 200 imported from nation C.
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