Your last assignment brings you to work with the government of Sweden on textile markets. Sweden is fully integrated into the textile world market and the world market price for textiles is 0.50 Euro. Your analyst has summarized for you the domestic supply and demand functions for textiles in Sweden:
Table:
Supply Q = -5 + 20P
Demand Q = 40 - 20P
a) Given the world market price, what quantities of textiles are produced and consumed in Sweden?
b) Calculate the consumer and producer surplus at their initial equilibrium levels. (NOTE: Although not required, it may be helpful to draw a graph).
c) The government of Sweden plans to implement a tariff of 0.50 Euro on every unit imported. With the tariff implemented, what quantity of textiles would be produced and consumed assuming Sweden is a "small country" in the textile market? (Again, drawing a graph may be helpful).
d) What is the size of consumer surplus, producer surplus and total tariff revenues with the tariff?
e) What is the difference in welfare between the free trade and tariff regimes? Given this quantity, would you recommend that the government of Sweden implement the tariff or not?