In nation 1, the domestic demand for good Y is Dd = 80+10P and the domestic supply for good Y is Sd = 10P. Suppose that the free trade (world) price of good Y is PY = $1.
(a) Draw the domestic demand and supply curves for good Y. Label everything clearly.
(b) Calculate and indicate in the diagram the level of domestic consumption, domestic production, and imports of commodity Y at the free trade price in your diagram.
(c) Calculate and indicate in the diagram the level of domestic consumption, domestic production, and imports of commodity Y if nation 1 imposes an ad valorem tari of 100% on good Y.
(d) How do domestic consumption, domestic production, trade, and government revenue change as a result of the tari ? Calculate.
(e) Determine the dollar value of the consumer and producer surplus before and after the imposition of the tari .
(f) What is the dollar value of the protection cost, or deadweight loss, of the tari ? Calculate.