ECON 7520 SEMESTER 1, 2025
Report
• This is an open book assessment item. No generative AI such as ChatGPT is
permitted.
• This is an individual assessment item — group work is not permitted.
• You have until 13.00h AEST on May 23, 2025 to 1) download and 2) work on the
assessment item and to 3) upload your report. You are required to upload your
report as a single, legible pdf file to the relevant TurnitIn folder. Please type your
report with the possible exception of graphs.
• Please keep your pdf file reasonably small (say ≤ 5MB).
• You may email your pdf file to c.mueller@uq.edu.au as proof of your time
of submission if you experience technical difficulties with uploading it. You then
still have to upload the same pdf file to TurnitIn as soon as possible.
• File formats other than pdf are not permitted. You may not submit multiple files.
• Where an extension has not been approved, the following penalties apply to late or
non-submission: A penalty of 10% of the maximum possible mark will be deducted
per 24 hours from the time submission is due for up to 7 calendar days. Each 24
hour block is recorded from the time the submission is due. After 7 days, any
submission will receive a mark of 0 unless an extension has been approved.
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declaration: “I certify that
– my submission is entirely my own original work, and no part of my answers
has been copied from any other source or person except where due acknowl-
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ECON 7520 SEMESTER 1, 2025
Report. In Lecture 4 we talked about import tariffs.1 We discussed their effect on
the trade balance and on welfare in a model with two goods. Now, write a report of
approximately 1,000 words that analyses and discusses the effect of import tariffs on the
period-1 trade balance and on the welfare in a model with one good.
(a) Assume that the government introduces import tariffs τ1 ≥ 0 and τ2 ≥ 0. Specifi-
cally, if the household consumes more than the domestic output Qt in period t = 1, 2,
then for each unit of the good that the household consumes in excess ofQt (= for each
unit imported), the household needs to pay τt units to the government. In each period
t = 1, 2, the government returns all revenues from the import tariff τt to the house-
hold by means of a lump-sum transfer Lt. Assume that the household treats τt and
Lt as exogenously given.
(b) Structure your report into the sections indicated in green below. Make sure to address
all of the following bullet points:
• Introduction (13%)
– Include a brief preview of your main findings.
– Be concise.
• Model (20%)
– Develop and describe an appropriate economic model (of the kind we dis-
cussed in the first half of ECON7520).
– An economic model includes descriptions of the goods and assets in the
economy, the agents in the economy, the agents’ objective functions, what
the agents own and/or are endowed with, etc.
– Do not choose a model with two goods (as we did in the lecture) but a
model with one good.
– For simplicity, assume that
* the household has a log utility function.
* the household is born without any assets or debts (B0 = 0).
* the interest rate r1 on assets held between periods 1 and 2 is nonnega-
tive.
– Introduce (most of the) appropriate notation for the report.
• Equilibrium (30%)
– Derive and briefly discuss the equilibrium of your model.
– You may find it useful to use the max function when writing down the
household’s intertemporal budget constraint. Recall that max{a, b} equals
the larger of a and b.
1We also talked about import tariffs in a different context in Lecture 8.
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ECON 7520 SEMESTER 1, 2025
• Effect of import tariffs on the trade balance and welfare (30%)
– Discuss the effect of the introduction of the tariffs on the period-1 trade
balance and on the household’s welfare.
– Include several appropriate figures. (Your discussion can be based on
those.)
– Cover the cases of temporary tariffs (τ1 > 0, τ2 = 0), anticipated future
import tariffs (τ1 = 0, τ2 > 0) and permanent tariffs (τ1, τ2 > 0).
• Difference to Two-Goods Model (7%)
– Briefly describe at least one key difference between the analysis of the two-
goods model from the lecture and the analysis of your one-good model.
(c) Include a word count of your report (excluding equations, figures and references).
Marking. The grade of your report will be based on the correctness, completeness
and thoughtfulness of your analysis and the clarity of exposition of your report. See
above percentages for the anticipated weight of each section.
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