Answer to Question #157855 in Economics for Katie Rafferty

Question

D: p=1000-5q

Domestic supply is:

S: p=200+15q

The world price is p_w=400.

The Treasury asks you to write a report including the following elements:

1.    How will prices, quantities and welfare change in the mushroom market if the government imposes a tariff of £75?

2.    Which trade model(s) are likely to be relevant in this market and why? Can you briefly summarize the main insights from those models in the context of this market?

3.    Please summarize the main arguments for and against the tariff. The government is interested both in how the tariff will affect welfare but also in how the tariffs will affect them politically.

4.    Britain considers signing a free trade agreement with Russia. Please evaluate the main potential effects of that agreement on the mushroom market.  

Answer 1

D: p = 1000-5q

The internal offer is:

S: p = 200 + 15q

World price pw = 400.

Equilibrium price 800

1. How will prices, quantity, and welfare in the mushroom market change if the government imposes a tariff of £ 75?

If the state introduces an additional tax, then the welfare in this market will decrease.

2. What trading models may be relevant in this market and why? Could you briefly summarize the main ideas of these models in the context of this market?

The classification of markets was developed by economists and from the point of view of the seller, the following types of markets were distinguished: monopoly; pure competition; oligarchy; monopolistic competition.

As you know, the market consists of buyers and sellers. The main determinants that determine the type of market in which an entrepreneur operates are the product, the type, and the number of buyers, the opportunities available to the buyer or seller in the market. It is extremely important to understand the market model as it determines the nature of the actions that must be taken to compete successfully. In some market models, competition is practically impossible, while in others, the competition may be specific.

3. Summarize the main arguments for and against the tariff. The government is interested in both how the tariff will affect the welfare and how the tariff will affect it politically.

For the tariff: an opportunity on the part of the state to stimulate mushroom producers, to develop the industry.

Against the tariff: the additional burden on paying customers.

4. Great Britain is considering the possibility of signing a free trade agreement with Russia. Please assess the main potential implications of this agreement for the mushroom market.

There are no prospects since Russia is rich in mushroom reserves. This is a free blessing. which grows in large quantities in the forests and the inhabitants collect them without hindrance. More promising is the organization of processing enterprises on the territory of Russia.