--%>
Assignment Help - homework help

Problem on deadweight loss

Assume that the domestic demand for television sets is explained by Q = 40,000 − 180P and that the supply is provided by Q = 20P. When televisions can be freely imported at a price of $160, then how many televisions would be generated in the domestic market? By how much domestic producer excess and deadweight losses modify when the government establishes a $20 tariff per television set? What when the tariff was $70?

E

Expert

Verified

Whenever televisions can be freely imported at a price of PW = $160, the domestic producers will generate 20(160) = 3200 television sets. The Domestic demand is 40,000 – 180*160 = 11,200 units.

705_2.jpg

Whenever the import duty of $20 is mentioned, the efficient price of importing televisions is $180. At such price, domestic firms will supply 20(180) = 3600 televisions, and demand will be 40,000 – 180(180) = 7600. The domestic producer surplus will raise by region C = (180 – 160)(3200) + 0.5(180 – 160)(3600 – 3200) = 68,000. The tariff makes a deadweight equivalent to region F + K = 0.5(180 – 160)(3600 – 3200) + 0.5(180 – 160)(11,200 – 7600) = 40,000.

The import duty of $70 increases the efficient import price to $230. You can observe from the graph that this is above the equilibrium price of $200 which would prevail in the domestic market devoid of any foreign trade.  Therefore, imposing such a big import duty is equivalent to banning trade in this industry together. The latest price will be $200 and the quantity demanded 4000. Associative to the free trade equilibrium, producer excess would now raise by area B + C = 0.5(200)(4000) – 0.5(160)(3200) = 144,000. The $70 import tariff makes a deadweight loss equivalent to region F + G + J + K = 0.5(200 – 160)(11,200 – 3200) = 160,000.

   Related Questions in Microeconomics

  • Q : Labor adds uniformly to total revenue

    The entire profit maximizing firm will appoint more labor up to the point where: (i) Average physical product of the labor equivalents the nominal wage. (ii) Last unit of the labor adds up equally to net revenue and net cost. (iii) Marginal product of the labor is at

    		•
  • Q : Negatively relative interest rate

    Interest rates tend to be negatively associated to: (w) household preferences for more liquid assets. (x) typical rates of return on alternative investments. (y) household willingness to delay consumption. (z) investor optimism concerning rates of ret

    		•
  • Q : Lower market price to cover average

    When the market price is lower to cover average total costs, in that case a profit-maximizing firm will: (i) shut down instantly. (ii) continue to operate where P = MC when P > AVC. (iii) adopt newer technology. (i

    		•
  • Q : Estimate monthly total cost by

    When Robomatic Corporation maximizes profit within its production of RoboMaids, so its monthly total costs will be around: (i) $40 million. (ii) $65 million. (iii) $90 million. (iv) $105 million. (v) $130 million.

    Q : Output level of profit maximizing of

    The profit maximizing competitive firm in illustrated graph will: (i) produce output level q5. (ii) minimize total costs by producing output level q3. (iii) experience fixed costs equal to 0P3fq4. (iv) produce output level q4. (v) inevitably experienc

    		•
  • Q : Demand of various vegetable why demand

    why demand change of onion in during one week due to change in it's price?

    		•
  • Q : Conscious Interdependence in

    When firms or individuals attempt to personal gains or maximize profits or to minimize losses by trying to predict how other firms or individuals are probable to reaction, decisionmaking involves: (i) parallelism of action. (ii) profit maximization. (

    		•
  • Q : Long run equilibrium price When

    When Christmas tree farming is a decreasing cost industry and this firm is typical, in that case an increase in the market demand for Christmas trees will give in a long run equilibrium price: (1) greater than P1. (2) less

    		•
  • Q : Relatively inelastic supply curve in

    Marginal revenue is below average revenue as [TR/Q] for a firm along with market power since: (w) the demand curve this faces is negatively sloped. (x) its supply curve is relatively inelastic. (y) marginal cost is be

    		•
  • Q : Relation between Implicit Costs and

    I have a problem in economics on Relation between Implicit Costs and Opportunity costs. Please help me in the following question. The Implicit costs are: (1) Opportunity costs. (2) Always variable costs. (3) Similar as the accounting costs. (4) Similar as the explicit

    		•