Suppose a large economy imposes a $5 tariff on a good. The world price of the good (excluding the tariff) falls from $20 to $18. Imports fall from 100 units to 60 units. The terms-of-trade gain is and the efficiency loss is . (Assume linear supply and demand curves.)

Solution and Explanation:

The given data:

Tariff on goods = $5

Change of price = from $20 to $18

Import falls from 100 units to 60 units

As per the given data, the terms of trade can be calculated as follows:

Terms of trade gain =

=

= 120

Therefore, the terms of trade gain is $120

The efficiency loss is calculated as follows:

= 60

Therefore, efficiency loss = $60

there was no passage listed but using the process of elimination i'd say it was d. the high economy would do the opposite. i don't see how low prices would affect it. high unemployment is possible but i feel d is the better answer.