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1-PC without tariff = $2000, PC with tariff=$2400

consumers consumption and so does  consumer surplus.

a,b,c,=20.000x400/2 = 4.000.000

d=20.000x400

e= 10.000x400/2

government revenue= 20.000x400= 8.000.000

producer surplus                        area(a+b) a= 400x100.000=40.000.000

( increases output by 20.000)                      b= 400x20.000/2=4.000.000

                                                                         44.000.000

3. Calculate the net impact on welfare as a result of formation of the customs union.

* under FT. Pus=$2 – Impact        Low cost Pruducer

** Tariff= 100%

Price US= $4         Belgium continues importing from US

Price US=$6

Belgium CU= Custom Unions

With Luxemburgo

Cosumption = 100, Production=50, At pw=3

Imports from Luxemburgo

4. Prove the following proposition: Free trade is better than no trade.

Let pa be the autarky price and pw be the free trade price. When the country moves from autarky to free trade, domestic consumption inverses from 0k to oj , while domestic production decreases from 0k to 0g. We are importing (D>s)the amount gj=m with free trade, consumers gain $(a+b+c+d+e+j), producer lose $ (a+e) ->Net gain. (b+c+D+J). Free trade is better than autarky. 

5. Are the reasons for asymmetries in bilateral trade statistics? 1.Uncellocated trade, 2. Trade system, 3. Currency conversion, 4. Time lag, 5. Differences in classifications

6)In practice, the statistics model or equation relates the lag of the monetary value, if trade between 2 countries to the lag of their respective GDP’s, Barriers and incentives to trade between them.

A number of variables are used to capture trade costs.

1.Bilateral distance,2.Common borders, 3.Common language, 4.Cultural jacters, 5.Tariff Barriers


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