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1.Given the Following information, calculate the cost to consumers, the benefit to Producers, the change in government revenue, and the deadweight costs of a Proposed 20 percent tariff on personal computers.

price of computers (free trade)


domestic production (free trade)


domestic production (after tariff)


domestic consumption (free trade)


domestic consumption (after tariff)


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

consumers consumption and so does  consumer surplus.

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


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


3. Assume that the free trade price of commodity X is equivalent to €2 In the US, and €3 in Luxembourg. Initially Belgium applies a 100 per cent Tariff on all imports, and produces 60 million units of X and consumes 80 Million units. Belgium then forms a customs union with Luxembourg, but Maintains the 100 per cent tariff with the US. After formation of the customs Union Belgium produces 50 million units of X, consumes 100 million X and Imports 50 million X. 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)What type of models are useful to predict bilateral Trade? What are the main variables included in these models?

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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