Tariff and Quota in a Small Country

Running head: TARIFF AND QUOTA IN A SMALL COUNTRY
Tariff and Quota in a Small Country
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1TARIFF AND QUOTA IN A SMALL COUNTRY
Table of Contents
Answer 4.a..................................................................................................................................2
Answer 4.b.................................................................................................................................2
Answer 5.a..................................................................................................................................3
Answer 5.b.................................................................................................................................4
Answer 5.c..................................................................................................................................4
Reference....................................................................................................................................5

2TARIFF AND QUOTA IN A SMALL COUNTRY
PW*+
T PW
*
S2+X2
S1+X
1 D
1
D2
S2
S
1 Q
PW
*
PW*+T
P
D
S
S+X
a
b
c
d
e
Answer 4.a
Figure 1: Import Tariff on Single Country
In the above figure, D represents the demand curve, S represents domestic supply, X
represents the availability of imports from non-tariffed countries, S+X represents the total
supply curve. Pw* is the world price set by the exporting country, (Pw*+t) is the world price
after tariff (t), M1= D1-(S1+X1) = imports from tariffed country before imposing tariff, M2=
D2-(S2+X2) = imports from tariffed country after imposing tariff, X1 = imports from non-
tariffed countries and X2 represents the amount of import that is not tariffed.
Answer 4.b
The area “a” represents increase in surplus to the domestic producer, “b” & “e”
represents the deadweight loss, “c” represents the surplus of non-tariffed countries producers
which is equal to (X2*t) and “d” represents the government revenue which is equal to (t*M2).
The area “a” is same for both normal tariff and discriminatory tariff. That means there is no