BUSE2: INTERNATIONAL BUSINESS AND TRADE

QUIZ ON MODULE 2 (Tariffs)

MTIM/ SUMMER 2021

Please submit in PDF format.

The country Moniya has its demand and supply schedule below for its Tea industry. Price is on the vertical axis
and quantity on the horizontal axis. Tea is measured per sack and price is in pesos.

2200
2000
1800
1600
1400
1200
1000
800
600
400
200
0
0 10 20 30 40 50 60 70 80 90 100

Demand Supply

1. At the domestic market, what is the domestic equilibrium price and quantity?
2. At the domestic market, how much is the consumer surplus?
3. At the domestic market, how much is the producer’s surplus?

Suppose Moniya will open its economy to free trade, it will face the world price of tea by 400 pesos.

4. How much is the total domestic consumption of tea when faced by the world price?
5. How much is the total consumer surplus now that Moniya has opened its economy?
6. How much is the Moniyan imported quantity of tea?
7. How much is the producer’s surplus now that Moniya has opened its economy?
8. How much domestic production is made when faced by the world price?

Suppose the government enacts a 200 pesos tariff on imports to restrict competition.

9. How much now is the equilibrium price?

10. How much is domestic consumption?
11. How much is the consumer surplus?
12. How much is the domestic production?
13. How much is the total producer surplus?
14. How much is the additional producer’s surplus when the tariff was enacted?
15. How much is the government revenue or revenue effect?