Country a Is a Large Country in the Market for Widgets.The

question 24

Essay

Country A is a large country in the market for Widgets.The following table summarizes two hypothetical situations in country A's domestic market for widgets.The first column depicts the situation with a $1000 tariff on imported widgets.The second column represents the situation with no tariff (that is,under free trade).Assume that transportation costs are zero and that demand and supply curves are linear.
$\begin{array}{|l|c|c|}\hline & \text { With } \$ 1000& \text { Free Trade} \\&\text { Tariff } \\\hline \text { World price of a widget }& \$ 2,000 &\$ 2,500 \\\hline \text { Tariff per unit }& \$ 1,000 & \$ 0 \\\hline \text { Price of a widget in Country A} & \$ 3,000 &\$ 2,500 \\\hline \text {Widgets bought in the U.S. per year }& 40,000 & 55,000 \\\hline \text {Widgets made in the U.S. per year} & 20,000 & 15,000 \\\hline \text {Widgets imported into the U.S. per year} & 20,000 & 40,000 \\\hline\end{array}$
Find out if there will be net welfare gain for the large country due to the imposition of the tariff.

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Definitions:

Convertible Debt

Debt instruments that can be converted into a predetermined number of shares of the issuing company's stock.

Zero-Coupon

Bonds or debt securities that are issued at a discount and do not pay periodic interest payments, instead offering a lump sum at maturity.

U.S. GAAP

United States Generally Accepted Accounting Principles, which are a set of rules and guidelines that companies follow when preparing financial statements in the U.S.

Convertible Debt

A type of bond or loan that can be converted into a predetermined amount of the company's equity at certain times during its life, usually at the discretion of the debt holder.