Import demand function given by p = 120 - q, q = 120 - p, export supply function of p = 2q, q = p/2.
The government decides to impose a tariff of $3 per units of imports
1. The Domestic Price and consumption before the tariff is:
Qd = Qs, Pd = Ps,
120 - q = 2q,
q = 40 units,
p = 2q = $80.
After the imposition of tariff:
Export supply is q = (p - 3)/2,
120 - p = (p - 3)/2,
240 - 2p = p - 3,
3p = 243,
p = $81,
q = 120 - p = 120 - 81 = 39 units.
2. The world price of the imports before the imposition of the tariff is: p = $80.
After the imposition: p = $81.
3. This country will not benefit from the imposition of tariffs, because the price will increase and the quantity will decrease by 1 unit.
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