A big country with a good's demand described by P= 150 - 3Q and a good's supply described by P= 40 + implements a $8 tariff, which ultimately decreases the world price from $66 to $64. (a) Calculate the total surplus under each scenario: no trade, free trade, and protected trade. (b) Calculate the distortion loss that is created by the tariff. (c) Suppose the tariff led to an increase in the current account, while primary budget deficit and priv saving both increased as well. What happened to the economy's investment?
A big country with a good's demand described by P= 150 - 3Q and a good's supply described by P= 40 + implements a $8 tariff, which ultimately decreases the world price from $66 to $64. (a) Calculate the total surplus under each scenario: no trade, free trade, and protected trade. (b) Calculate the distortion loss that is created by the tariff. (c) Suppose the tariff led to an increase in the current account, while primary budget deficit and priv saving both increased as well. What happened to the economy's investment?
Chapter1: Making Economics Decisions
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Transcribed Image Text:A big country with a good's demand described by P= 150 - 3Q and a good's supply described by P=
implements a $8 tariff, which ultimately decreases the world price from $66 to $64.
40 + 20
(a) Calculate the total surplus under each scenario: no trade, free trade, and protected trade.
(b) Calculate the distortion loss that is created by the tariff.
(c) Suppose the tariff led to an increase in the current account, while primary budget deficit and private
saving both increased as well. What happened to the economy's investment?
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