Answer :
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 = [tex](previous price - present price) * present imports[/tex]
[tex]=(20-18) * 60[/tex] = [tex]2 * 60[/tex]
= 120
Therefore, the terms of trade gain is $120
The efficiency loss is calculated as follows:
[tex]Efficiency loss $=\frac{1}{2}$ (Previous price - present price) $^{*}$ Imports at present[/tex]
[tex]=\frac{1}{2}(20-18)^{*} 60[/tex] [tex]=\frac{1}{2}(2)^{*} 60[/tex]
= 60
Therefore, efficiency loss = $60