gaby buckeye en307

7/28/2019 Gaby Buckeye EN307

1/4

THE UNIVERSITY OF DODOMA

COLLEGE OF SOCIAL SCIENCES

SCHOOL OF BUSINESS AND ECONOMICS STUDIES

DEPARTMENT OF ECONOMICS AND STATISTICS

COURSE NAME: INTERNATIONAL ECONOMICS I

COURSE CODE: EN 307

COURSE INSTRUCTOR: MR. MYOVELLA G.

DEGREE PROGRAM: BAES

STUDENT NAME: BUKEYE, GABRIEL

REGISTRATION NUMBER: T/UDOM/2010/05193

QUESTION:

Given the commodity market in country H with domestic demand and supply functions

SH (p) = -50+50p

DH (p) = 370-20p

Case 1: What is the welfare of Closed Equilibrium

Case 2: What is the welfare under Tariff Protection

Case 3: What is the welfare under Customs Union of H with P


2/4

One commodity market in country H with domestic demand and supply functions:

A potential partner country: P World price: pW = 4 Non-discriminative ad valorem tariff: t = 1 Price in partner country: pP = 4.5 From

-50 + 50p = 370 20p

we get closed equilibrium price

and closed equilibrium quantity

Case 1: Welfare of closed equilibrium

Price of zero demand

Price of zero supply

Consumers surplus

Producers surplus

Total welfare in closed equilibrium

20p-370=(p)D

50p+50-=(p)S

H

H

6=70

420

=p*

250=)p(D=)p(S=q*

H*

H

*

18.5=p0=20p-370

1=p0=50p+50-

1562.5=2506)-(18.52

1=CS

625=2501)-(6

2

1=PS

2187.5=625+1562.5=PS+CS=TWCE


3/4

Case 2: Tariff Protection

Tariff protected market price

Domestic demand

Domestic supply

Imports

Consumers surplus

Producers surplus

Government tariff revenue

Total welfare under tariff protection:

Compared to closed equilibrium consumers are gaining, producers are losing, total welfareeffect is positive.

Case 3: Customs Union of H with P

Customs Union market price

Domestic demand

Domestic supply

5=1+4=t+p=p wt

270=5*20-370=)p(D tH

200=5*50+50-=)p(D tH

70=200-270=)p(S-)p(D tHtH

1822.5=2705)-(18.52

1=CS

400=2001)-(52

1=PS

70=1*70=TR

2292.5=70+400+1822.5=TR+PS+CS=TWTP

4.5=p=p PCU

280=4.5*20-370=)p(D CUH

175=4.5*50+50-=)p(S CUH


4/4

Imports

Consumers surplus

Producers surplus

Total welfare

Welfare effect of CU compared to tariff protection:

Conclusion: By Viners model of customs union, in this particular case tariff protection isfor country H economically more beneficial than customs union.

105=175-280=)p(S-)p(D CUHCUH

1960=2804.5)-(18.52

1=CS

306.25=1751)-(4.52

1=PS

2266.25=306.25+1960=PS+CS=TWCU

26.25-=2292.5-2266.25=TW-TW=WE TCCUCU

gaby buckeye en307

Documents