Chapter 1. Chapter 8
Question
Work It Out, Chapter 8
(Transcript of audio with descriptions. Transcript includes narrator headings and description headings of the visual content)
(Speaker)
This problem will ask you to rank in ascending order of Home welfare three different tariff conditions and justify your answers. If two items are equivalent, you should indicate this accordingly.
Let’s look at the conditions given.
Condition (a) is when there is a tariff of t in a small country corresponding to the quantity of imports M.
(Description)
The following text is written:
a. Tariff of t in a small country corresponding to the quantity of imports M.
(Speaker)
Condition (b) is when there is a tariff of t in a large country corresponding to the same quantity of imports M.
(Description)
The following text is written below the previous one:
b. Tariff of t in a large country corresponding to the same quantity of imports M.
(Speaker)
Finally, condition (c) is when there is a tariff of t′ in a large country corresponding to the quantity of imports M prime greater than M.
(Description)
The following text is written above the previous one:
c. Tariff of t prime in a large country corresponding to the quantity of imports M prime is greater than M.
(Speaker)
Now we can rank the conditions in ascending order of Home welfare. Let’s start by looking at conditions (a) and (b).
(Description)
The following text is written:
a. Tariff of t in a small country corresponding to the quantity of imports M.
b. Tariff of t in a large country corresponding to the same quantity of imports M.
(Speaker)
For the same quantity of imports, M, Home welfare is greater in the large-country case relative to the small-country case because (assuming an optimal tariff) the terms-of-trade gain partially offsets the deadweight losses due to the tariff; thus a is less than b for sure.
(Description)
The following relation is written below the previous text:
a is less than b.
(Speaker)
Now let’s turn our attention to condition (c).
(Description)
The following text is written:
c. Tariff of t prime in a large country corresponding to the quantity of imports M prime is greater than M.
(Speaker)
There is no definite answer whether b is greater than c or b is less than c because we do not know the relationship between the tariff levels t and t prime and the optimal tariff level, t star. If t prime is less than t is less than t prime, then a is less than c is less than b.
(Description)
The following text is written below the previous one:
If t prime is less than t is less than t prime, then a is less than c is less than b.
(Speaker)
If t prime is less than t star is less than t, then a is less than b is less than c.
(Description)
The following text is written below the previous one:
If t prime is less than t star is less than t, then a is less than b is less than c.
(Speaker)
If t prime is less than t star is less than t, then the answer will be determined by the relative amount that t and t prime differ from t star. For a small country, Home welfare is always less with a tariff due to the deadweight loss.
(Description)
The following text is written below the previous one:
If t prime is less than t star is less than t, then the answer will be determined by the relative amount that t and t prime differ from t star.