Country A has a competitive market of charcoal. The demand and supply of the domestic market are given by QD = 12– 3P QS = P Country A has access to the competitive international market, in which the charcoal price is Pw = 3.5. The domestic market is small and cannot influence the international price. 3.1. Compute the equilibrium quantity produced and traded in the domestic market, and the quantity traded in the international market. What are the surplus for consumers and the surplus for producers in Country A? Hint: you may first determine whether there is import or export. 3.2. Suppose there is a tax t=0.2 on the suppliers in Country A for every unit they sell (to the domestic market or the international market). What is the quantity produced and traded in the domestic market, and what are the surplus for consumers and the surplus for producers in Country A? 3.3. How does the tax affect the surplus for consumers in Country A, the surplus for producers in Country A? What is the deadweight loss?
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Country A has a competitive market of charcoal. The demand and supply of the domestic market are given by QD = 12– 3P QS = P Country A has access to the competitive international market, in which the charcoal price is Pw = 3.5. The domestic market is small and cannot influence the international price.
3.1. Compute the
3.2. Suppose there is a tax t=0.2 on the suppliers in Country A for every unit they sell (to the domestic market or the international market). What is the quantity produced and traded in the domestic market, and what are the surplus for consumers and the surplus for producers in Country A?
3.3. How does the tax affect the surplus for consumers in Country A, the surplus for producers in Country A? What is the
3.4. If we choose a different value for t in 3.2, is it possible to change the direct of trade (from import to export, or from export to import)? If no, explain why. If yes, provide such a value for t and compute the new equilibrium quantity produced and traded in the domestic market and the quantity traded in the international market.
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