--%>
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 : Profit Maximization-Labor Markets

    When after hiring the very last worker, the organization’s profit is similar as it was prior to the last worker was hired, the firm must: (1) Hire more workers to raise the profit. (2) Layoff several workers to raise gain. (3) Not hire any more workers. (4) Shut

    		•
  • Q : Right-to-Work Laws The states which

    The states which have ‘Right to Work’ laws, and collective bargaining agreements: (i) Can’t need all the employees to join a union in a certain period after being hired. (ii) Generally specify the number of employees a firm should hire. (iii) Should

    		•
  • Q : Economic Capital verses Financial

    Your construction company currently bought a bulldozer on credit. By the perspective of your lender, and your firm’s IOU for this bulldozer is an illustration of: (1) a liability. (2) economic capital. (3) total variable cost. (4) capitalization. (5) financial c

    		•
  • Q : Problem regarding Craft Unions Can

    Can someone help me in finding out the right answer from the given options. The craft unions historically tried to systematize all the workers in: (1) A specific company, in spite of size. (2) The United States. (3) The specific broad industry. (4) Relatively highly s

    		•
  • Q : Define fixed cost Fixed cost : Fixed

    Fixed cost: Fixed costs refer to cost that remains constant as output modifies. For example: rent

    		•
  • Q : Meaning of utility For economists, the

    For economists, the term "utility" signifies: 1) versatility and flexibility 2) rationality 3) pleasure and satisfaction 4) purposefulness.

    		•
  • Q : Kinked demand curve about product price

    When an oligopolist is aware about the firm faces a kinked demand curve, this: (1) may cut price along with little expected reaction by rivals. (2) can avoid consumer demand and preferences. (3) may keep product price despite large ch

    		•
  • Q : Difficulty of competitive firms to

    Competitive firms determine this difficult to exploit consumers as: (w) consumer boycotts generate bad publicity. (x) market distributions of products are uniformly fair. (y) government price ceilings equivalent opportunity costs. (z) prices that exceed costs attract

    		•
  • Q : Occurrences of imposing tax on

    You regularly buy artichokes that happen to be perfectly elastically supplied within the long run. Therefore government imposes a tax upon artichokes. Then the tax is eventually borne by: (w) retailers. (x) consumers. (y) consumers and artichoke farme

    		•
  • Q : Higher interest rate in current

    For current consumption growing preferences over future consumption would be evidenced from a: (w) higher interest rate. (x) more quick rate of investment. (y) larger government budget surplus. (z) surplus into the balance of trade.

    		•