(Solved): The market for widgets in Alpha is described by the following equations: Q^(S)=2P-90 Q^(D)=330-4P Th ...

The market for widgets in Alpha is described by the following equations:

The (initial) free-trade price is

per widget. In addition, a study indicates that if a large open economy imposes any trade restrictions on widgets, the world price will adjust by

per widget. Suppose the newly elected government wanted to increase the current level of domestic production of widgets by one-third (i.e., the free-trade level of production) via the imposition of a specific tariff. a) If Alpha is a small open economy, answer the following questions: i) Find the specific tariff that will achieve this goal. ( 3 points) ii) Compared to the free trade equilibrium, compute the change in total surplus in Alpha after the imposition of this specific tariff. Decompose the sources of this change in total surplus (i.e., explain and identify changes due to the consumption distortion loss, production distortion loss, and other applicable components and be sure to show the calculations). (8 points) b) If Alpha is a large open economy, answer the following questions: i) Find the specific tariff that will achieve this goal. (5 points) ii) Compared to the free trade equilibrium, compute the change in total surplus in Alpha after the imposition of this specific tariff. Decompose the sources of this change in total surplus (i.e., explain and identify changes due to the consumption distortion loss, production distortion loss, and other applicable components and be sure to show the calculations). (9 points)