--%>
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 : Problem regarding to present value and

    When the price of a financial asset is of $2,000 and the interest rate is 10 percent, in that case investment is not reasonable for: (1) a perpetuity paying $200 annually. (2) an income stream paying $1000, $800, and $600, respectivel

    		•
  • Q : Illustrates the Loren curve by total

    When 40 percent of total personal income was received by 20 % of the highest income families, in that case the: (w) income distribution would be perfectly equal. (x) income pattern would be foreign to the U.S. (y) Lorenz curve would be the 45 degree r

    		•
  • Q : Rate of Return on Investment When the

    When the rate of return on investment equals the interest rate, in that case the optimal level of investment will: (w) rise. (x) fall. (y) not change. (z) Any of the above is possible.

    Q : Rates of Return of Cash Flow Assume

    Assume that an apartment complex is predicted to produce a consistent net $800,000 cash flow yearly in rent, after deducting all recurring variable costs (for example, taxes, utilities, and maintenance). When its current price is $10

    		•
  • Q : Expansion of increasing cost industries

    Expansion of the industry in increasing cost industries causes: (w) increases in each firm’s costs at every level of output. (x) decreases in each firm’s costs at every level of output. (y) all firms to suffer long-run economic losses. (z)

    		•
  • Q : Econ Give the answer of following

    Give the answer of following question. In the quintile distribution of income, the term "quintile" represents: A) 5 percent of the income receivers. B) 10 percent of the income receivers. C) 20 percent of the income receivers. D) 25 percent of the income receivers.

    		•
  • Q : Illustration of Shirking Can someone

    Can someone please help me in finding out the accurate answer from the following question. Jones, a computer programmer, plays computer games all day rather than doing his work. This is an illustration of: (i) Moral turpitude. (ii) Inefficiency salaries. (iii) Shirkin

    		•
  • Q : Marginal revenue-product of the labor

    The monopsonist will hire labor till labor's marginal resource cost equivalents the: (p) The value of average product of labor. (q) Price of labor. (r) Marginal revenue product of labor. (s) Marginal physical product. Choose the ri

    		•
  • Q : Change in Supply versus change in

    Assume that a screen at the front of this room exhibits a graph of supply curve for ice-cream. The shift of this supply curve away from the center of our Earth would replicate: (i) A raise in the quantity of ice-cream demanded. (ii) A reduction in the supply of ice-cr

    		•
  • Q : Types of market in economy Types of

    Types of market in economy: There are two kinds of market in this economy: Factor market-for Factors of Production and Product market-for goods and Services.

    		•