FEB13085: International Trade Policy Problem Set 2 Solutions

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28 Questions

What does the optimal tariff equal to in the given context?

Inverse of the elasticity of import demand

In the scenario described, what does the monopolist's profit maximization condition indicate?

Import demand equals 50

How does the monopolist's marginal cost change with a tariff?

Increases by twice the value of the tariff

What is the relationship between import demand elasticity and protectionism?

As import demand elasticity decreases, protectionism tends to increase.

How does a decrease in import demand elasticity affect the optimal percentage tariff?

Increases the optimal percentage tariff

What happens to the monopolist's exports when a tariff is imposed?

Decrease proportional to the tariff value

What is the import demand elasticity of the good in the scenario described?

1.5

In the scenario, what is the price charged by the monopolist for the good?

30

How many units are exported by the monopolist in the free trade equilibrium?

80 units

What is the marginal cost of the monopolist in this scenario?

10

How does the monopolist maximize its profits?

By setting marginal revenue equal to 30

What is a specific tariff?

A tax on imports defined as an amount of currency per unit of the good.

If the world price of a good falls below Pw and a country imposes an import quota, what will happen?

The domestic price of the good will fall.

What happens if a country faces the world price Pw and trades freely without any restrictions?

Consumers will benefit from lower prices.

In monopoly pricing, what is the objective of the monopolist?

To maximize profits.

Which factor influences import demand elasticity the most?

The availability of close substitutes.

In a scenario of free trade between Indonesia and Thailand, what is the world price of pineapples?

1.75

What is the volume of trade between Indonesia and Thailand when they engage in free trade?

10

What effect does a 0.5 tariff imposed by Indonesia have on the price of pineapples in each country?

Price increases in both countries

After the 0.5 tariff, what is the price of pineapples in Indonesia?

2

Under free trade, what happens to the quantity of pineapples supplied and demanded in Thailand?

Supply and demand remain constant

What is the impact of a 0.5 tariff on the volume of trade between Indonesia and Thailand?

Volume of trade decreases

What does a lower import demand elasticity imply?

Lower reduction of imports due to a tariff

If a country has a 100% optimal percentage tariff, what does this indicate?

Low import demand elasticity

In the context of tariffs, what is the relationship between the optimal percentage tariff and import demand elasticities?

Inverse relationship

How does a monopoly facing a linear demand curve affect its pricing strategies?

Allows the monopoly to increase prices

What is the significance of lower deadweight losses in the context of tariffs on inelastic goods?

Higher terms-of-trade gains

What economic concept is associated with the optimal percentage tariff being 82%?

Import demand elasticity

This quiz provides solutions to a problem set related to international trade policy. It covers topics such as optimal percentage tariff for a large country with perfect competition and related economic concepts.

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