consider the following graph. The world market price under free trade is $6. For
ID: 1204692 • Letter: C
Question
consider the following graph. The world market price under free trade is $6. For questions (8)–(9) suppose Austria imposes a tariff of $3 per unit, and Austria is a large country.
(8). there is no trade for Austria.
(9). Austria’s terms of trade improve. For questions
(10) and (11), suppose Austria imposes a tariff of $1 per unit, and that Austria is a large country.(4 points each).
(10). Austria’s deadweight loss is smaller than $3.
(11). Suppose the domestic price in Austria after the tariff is $6.5, then Austria’s welfare increases relative to free trade.
T or F, need explain
consider the following graph. The world market price under free trade is S6. 15Price 15 , Price Austria Quantity 12 18 24 27 For questions (1)-(7), suppose Austria imposes a quota of 12 units, and Austria is a sExplanation / Answer
a. This is true, when price becomes $9 because of tariff then there is no trade , the domestic demand is met by domestic supply.
b. False, terms of trade will not improve because of high tariff. It can worsen or even stay the same.
c. Deadweight loss when traiff is $3 is equal to area b+e
Area b=1/2*(12-9)*1=1.5
area e=1/2*(27-24)*1=1.5
Total loss =$3
Thus, deadweight loss is $3. So, statement is false.
d. False. Welfare will not improve as there will be deadweight loss due to tariff.
d.
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