If the answer is complete, I will rate 5 stars!!! The following diagram shows tw

Question

If the answer is complete, I will rate 5 stars!!!

The following diagram shows two import demand functions for Home, M D E is elastic and M D 1 is less elastic. The diagram also shows two export supply functions for Foreign, X S*E is elastic and X S*I is less elastic. If Home has import demand M D E and foreign has export supply X S*I explain whether an import tariff, t, imposed by Home will have a large or small effect on Home's price, P t and on Foreign's price, P* t. If Home has import demand M D E and foreign has export supply X S*I explain whether an import tariff, t, imposed by Home will lead to a large or small terms of trade gain for Home. For which combination of M D and X S* will an export subsidy by Foreign lead to the largest increase in the volume of trade? For which combination of M D and X S* will a tariff by Home lead to the smallest distortionary losses at Home?

Explanation / Answer

a) It will small effect on price because slope of Xse is small so when the graph of MD1

shifts there won't be any signifiant change in the price .

b)It will vae large effect on price as Xs1 slope is greater now so slight change in Demand MDe will cause greater price change

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