Assume that the world market for producing radios is monopolistically competitive. Suppose that the price of a typical radio is $25.
a. Why is this market likely to be characterized by two-way trade?
b. Suppose that Country A levies a tax of $5 on each radio produced within its borders. Will radios continue to be produced in Country A? If they are, what will happen to their price? If they are not, who will produce them?
c. If you concluded that radios will continue to be produced in Country A, explain what will happen to their price in the short run. Illustrate your answer graphically. d.What will happen to their price in the long run?