Reference no: EM133082383

Consider a planet called Xandar whose firms operate under perfect competition. Suppose that the market demand curve is given by P = 45 - 2 × QD and the market supply curve is given by P = 9 + 2 × QS. Xandar is considering using an import tariff of τ = 3.

4.1 Compute the intercept of the import demand curve (hint: invert market demand and supply) 4.2 Compute the absolute value of the slope of the import demand curve

For 4.3 - 4.5, suppose export supply is perfectly elastic at P W = 20

4.3 Compute the increase in consumer surplus from autarky to free trade

4.4 Compute the increase in consumer surplus from autarky to the tariff outcome

4.5 Given this export supply curve, Xandar should:

A Remain in autarky

B Open up to trade without the tariff

C Open up to trade with the tariff of τ = 3

For 4.6 - 4.8, suppose export supply is imperfectly elastic at P W = 20 + Q

4.6 Compute the increase in consumer surplus from autarky to free trade

4.7 Compute the increase in consumer surplus from autarky to the tariff outcome

4.8 Given this export supply curve, Xandar should: A Remain in autarky B Open up to trade without the tariff C Open up to trade with the tariff of τ = 3