--%>
Assignment Help - homework help

Problem on free trade equilibrium

The domestic demand curve for portable radios is provided by Qd = 5000 − 100P, here Qd is the number of radios which would be purchased whenever the price is P. The domestic supply curve for radios is provided by Qs = 150P, where Qs is the amount of radios which would be generated domestically when the price were P. Assume that radios can be received in the world market at a price of $10 per radio. The Domestic radio producers have effectively lobbied Congress to oblige a tariff of $5 per radio.

a) Sketch a graph stating the free trade equilibrium (with no tariff). Clearly state the equilibrium price.

b) By how much would tariff rise producer excess for domestic radio suppliers?

c) How much would govt. collect in tariff revenues?

d) Determine deadweight loss from the tariff?

E

Expert

Verified

a)

162_1.jpg

In free trade equilibrium, domestic demand is 4000, domestic supply is 1500, and import is 2500 units.

b) The producer excess with free trade would be 1/2(10-0)(1500). With the tariff, domestic supply will raise to 2250 and producer surplus will raise to 1/2(15-0)(2250) = 16875. Therefore producer surplus will rise by 9,375.

c) Through tariff, domestic demand will drop to 3500 units and domestic demand will rise to 2250 units.  Therefore, 1250 units will be imported.  The tariffs of $5 on each of such units will outcome in government receipts of 6,250.

d) The deadweight loss from tariff will come from two sources. First, the deadweight loss is related overproduction of domestic suppliers will be 1/2 (2250-1500)5 = 1875. Second, the deadweight loss is related with the reduction in consumption by consumers due to the tariff is 1/2 (4000-3500)5 = 1250.  Thus, the total deadweight loss with this tariff is 3,125.

 

   Related Questions in Microeconomics

  • Q : Maximum possible total revenue by sales

    Maximum possible total revenue by sales of the especially popular St. Valentine’s Day software is about: (i) $140 million. (ii) $250 million. (iii) $350 million. (iv) $420 million. (v) $1 billion.

    Q : Pure competition or monopoly with

    Compared along with pure competition or monopoly, not perfect competition is: (w) far more common in Europe than in the United States. (x) much more common in markets during the world. (y) much less common in advanced nations than in underdeveloped na

    		•
  • Q : Efficiency Wages problem The employees

    The employees at times pose principal-agent problems for the firm’s owners in the deficiency of constant monitoring. Such problems are most probable to be lessened when a firm adopts the policy of: (1) dynamically opposing the attempts to unionize. (2) Paying em

    		•
  • Q : Probable demand to be least price

    Of the given, the good for that demand is probable to be least price elastic is: (i) electricity used to light downtown streets. (ii) airline tickets in late December. (iii) Bic pens. (iv) chocolate milk. (v) Merit cigarettes.

    Q : Please In the quintile distribution of

    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 15 percent of the income receivers. D 20 percent of the income receivers.

    		•
  • Q : Equal Income Distribution The income

    The income distribution tends to become more equal most quickly as countries become more: (1) socialistic. (2) capitalistic. (3) economically developed. (4) centrally planned. (5) agricultural. Please choose the ri

    		•
  • Q : Motivation behind granting patent rights

    Normal 0

  • Q : Monetary liability All currency issued

    All currency issued by central bank is its monetary liability. Explain how? Answer: The Central Bank is grateful to back the currency with assets of equivalent valu

    		•
  • Q : Labor markets profit maximization When,

    When, after hiring the very last worker, the organization’s profit is similar as it was before the last worker was hired, then the firm must: (1) Hire more workers to raise the profit. (2) Layoff some workers to raise the profit. (3) Not appoint any more workers

    		•
  • Q : Operating analytic Time of

    When this purely-competitive firm makes output level Q, this is operating within the: (i) technological long run. (ii) long run. (iii) short run. (iv) shut down period. (v) boom period of the business cycle.