Please read Chapter 7 Import Tariffs and Quotas under Perfect Competition (in particular, please pay attention to p. 200, p. 204 – 212, p. 222 – 227, and p. 229 – 234).

Please answer the following questions based on the concept of chapter 7 (some questions might require you to draw a diagram to illustrate your answers).  You may want to draw one diagram for a small country (questions 1, 2, 3, 4, 5, and 6), then another diagram for a large country (questions 7, 8, 9, and 10).  Each question is worth 5 points. 

1. When a small importing country engages in free trade, what will be its domestic price?
2. On a diagram, where can you find an increase in total surplus when a small importing country engages in free trade?
3. If a small importing country imposes a per-unit tariff on an imported product, how does this affect the world price?  Please explain.
4. On a diagram, what is the deadweight (as opposed to free trade) when a small importing country imposes a per-unit tariff? 
5. Think about a small importing country setting a quota on an imported product. What is an equivalent import tariff of the import quota? What is the meaning of quota rents?
6. How do different methods of allocating an import quota affect a country’s total surplus compared to using an equivalent import tariff?
7. If a LARGE importing country imposes a per-unit tariff on an imported product, how does this affect the world price?  Please explain.
8. What is the change in total surplus when a LARGE importing country switches from free trade to using a tariff?
9. What are the terms of trade gain when a large importing country applies a per-unit tariff?
10. What is the optimal tariff for a large importing country?