Gce Model Questions Vol1 2018 Economics Question 29
Practice objective / multiple choice question 29 from the 2018 Gce Model Questions Vol1 Economics examination.
Country B exports a primary good and imports a manufactured good. The price elasticity of demand for its export good is \(-1.5\) and the price elasticity of demand for its import good is \(-0.8\). The world price of the import good is $5 per unit and the world price of the export good is $20 per unit. The government is considering an ad valorem tariff on imports. (i) Derive the formula for the optimal tariff that maximises national welfare when both export and import elasticities are taken into account. (ii) Using the derived formula, calculate the optimal ad valorem tariff rate (as a percentage of the import price).
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About This Question
This is Gce Model Questions Vol1 2018 Economics Question 29. It is one of the objective questions from the 2018 Gce Model Questions Vol1 Economics examination.
Difficulty level: Hard .
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