--%>
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 : Define demand with market supply and

    When technological advances boost market supply and total revenue both within an industry, in that case: (w) demand is relatively price elastic. (x) the industry is dominated by a monopoly. (y) patenting technological advances ensures

    		•
  • Q : Spending on rail safety ‘How be

    ‘How be supposed to the government decide whether to spend in additional rail safety measures?’

    		•
  • Q : Giving wholesale price per dozen by

    When Rose Garden Wholesalers has a typical type cost structure of rose farms within this purely competitive industry, into the long run new competitors would most likely enter the market providing the wholesale price

    		•
  • Q : Regulatory barrier to entry Billy

    Billy recently invented and in that case patented a motorized flying skateboard which transports people to and from their destinations in less than half the time this would take to ride or drive a bus. Billy is protected from competition from a: (1) regulatory barrier

    		•
  • Q : Set price equal to produce output

    Assume that HoloIMAGine’s patents for holographic technology lapsed, as well as entry of new competitors within this market eroded the demand for HoloIMAGine technology, even though the firm retains several market power since competitors’

    		•
  • Q : Explain about term market failure The

    The phrase "market failure" refers to: (w) the failure of market economies to deal with social problems. (x) the Stock Market Crash of 1929. (y) cases where supplies and demands within private markets yield inefficiency, excessive or inequity instabil

    		•
  • Q : Price elasticity of demand coefficient

    In this demonstrated figure, there the price elasticity of demand coefficient is: (1) one at the midpoint. (2) greater than one in range a. (3) less than one in range b. (4) falling along with movements down along the demand curve. (5) All of the abov

    		•
  • Q : Absolute value of demand slope Since

    Since the price drop/falls and quantity demanded rises all along this demand curve for pizza, the absolute value of slope will be: (1) Is constant and elasticity falls. (2) Elasticity are constant. (3) Drop/falls and elasticity is constant. (4) Elasti

    		•
  • Q : Elucidate the merits of mixed economy

    Elucidate the merits of mixed economy system?

    		•
  • Q : Short-run equilibrium and long run

    When a purely competitive industry is within equilibrium as well as all firms in the industry are operating along with economies of scale, in that case the industry is in: (w) long-run and short-run equilibrium. (x) short-run equilibrium and long run

    		•