Question 4

A small country, Madagascar, exports coconuts. The price is $15 per unit, at which

25 units are produced, and 5 are consumed domestically. Suppose they impose a $5

tariff on exports in an effort to motivate producers to keep production local.

Domestic consumers will now demand a price of $10, but the world price will

remain unchanged. The domestic demand becomes 10 units, and 10 units are

exported.

a) Show this graphically.

b) Calculate the effects to each group: domestic producers, domestic

consumers, and the government.

c) Calculate the deadweight loss.

d) How might the result be different for a large country? Be specific.