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This question asks you to work through an example of optimal trade policy when an importing country wants to manipulate its terms of trade Consider an importing country that faces a foreign export

This question asks you to work through an example of optimal trade policy when an importing
country wants to manipulate its terms of trade Consider an importing country that faces a foreign
export supply curve X3 = a + b – P*, where X s is the export supply, P* is the price that foreigners
recieve for their exports, a is a negative constant1 and b is a positive constant Recall that foreign
exports equal domestic imports M 1 2 Write down the formula for the optimal tariff (as a percent of the price) t/P* (Hint: see lecture) Find ES (13*) for an arbitrary value of P* Express your answer both in terms of X5 and a alone,
and in terms of P*, a and b alone Is 63 increasing, decreasing, or constant in the domestic imports M ? What does this imply for how small and large importers should set their import tariffs? Explain the intuition behind your answer to part 3

Apr 30 2020 View more View Less

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