Problem 1: At free-trade prices, a tennis racquet sells for $100 and contains $40 worth
of aluminum inputs and $30 worth of plastic. In Country A, the nominal tariff rates are
40% on tennis racquets, 20% on aluminum, and 10% on plastic. Given these rates, what
is the effective rate of protection on racquets in Country A?
Problem 2: HOME is a small country. The following are the demand and supply curves
of wine in HOME.
QD = 500 - 5P;
7QS = -300 + 60P
The free trade/world price of wine is $20
(a) Find the autarky price of wine in HOME. Would HOME be the importer or exporter
of wine?
(b) At which price that HOME export/import wine? Find the domestic production and
domestic supply and the volume of trade under free trade
(c) Determine the effect of free trade on domestic consumer surplus and producer
surplus
In the above setup assume that HOME now imposes a specific tariff of $5 on each unit
of wine imported. Given this tariff on wine:
(d) Determine the effect of the tariff on the price of wine in HOME and on the volume
of trade.
(e) Determine the effect of the tariff on the welfare of HOME.