A large country's demand curve is given by Q=20-P

1)

A large country's demand curve is given by Q=20-P and its supply curve is given by Q=(P/2) - (5/2). Assume that there is initially free trade and that the world price under free trade is $6. Other things being equal, what is the size of the import quota that, when introduced, would be equivalent (i.e. have the same impact on price and quantity) to the introduction of a $3 specific import tariff? In calculating your answer, assume that for every $1 increase in domestic price, the world price falls by $0.50.

a. 10.5

b. 13.5

c. 12

d.9

2)

A large country’s demand curve is given by Q=20-P and its supply curve is given by Q=(P/2) – (5/2). If the world is currently in free trade and the price under free trade is $6, then the introduction of which of the following specific tariffs will maximise total welfare for this economy? In calculating your answer, assume that for every $1 increase in domestic price, the world price falls by $1.

a.2

b.6

c.4

d.8