--%>
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 : The Demand for Loanable Funds An

    An increase during the demand for loanable funds will be mirrored through: (1) an increase in the supply of bonds. (2) a decrease into the interest rate. (3) a lower subjective internal rate of discount through typical savers. (4) a reduction in the f

    		•
  • Q : Explicit Costs of business The Explicit

    The Explicit costs of doing the business would comprise: (i) The value of owner’s time (ii) Depreciation on the company owned truck (iii) The interest that the owner could earn when her savings were not tied up in firm. (iv) Salaries paid to the

    		•
  • Q : Maximization of the Goals of Firm I

    I have a problem in economics on Maximization of the Goals of Firm. Please help me in the following question. The firm’s goal of profit maximization is most distantly analogous to: (i) Revenue maximization by the Internal Revenue Agents. (ii) Ma

    		•
  • Q : Minimize losses of purely competitive

    The wholesale price per dozen roses below that such purely competitive rose farm would minimize losses through closing their operation is: (1) $3.00 per dozen roses. (2) $3.83 per dozen roses. (3) $4.00 per dozen roses. (4) $4.30 per

    		•
  • Q : Boosting minimum wage laws Boosting

    Boosting minimum wage laws from $5 to $8 per hour is LEAST probable to: (w) give some unskilled workers with higher incomes. (x) cause some low-wage workers to lose their jobs. (y) raise friendship like a basis for employment. (z) decrease unemploymen

    		•
  • Q : Income floor by marginal tax rate A

    A marginal tax rate of 75 percent and an income floor of ____ give in a break-even level of income of $8,000. (w) $2,000. (x) $4,000. (y) $6,000. (z) $16,000. Hello guys I want you

    		•
  • Q : Depended price on present value The

    The prospects for getting rich by buying assets at prices substantially below their present values are dampened by the: (w) special advantages you have in securing investment information. (x) lack of competition for information regarding profit opport

    		•
  • Q : Welfare Programs and Incentives The

    The incentive to work and earn income is probable to be greatest when the basic welfare benefit is ____ and the fundamental welfare benefit is reduced by ____ which the person earns. (w) high, the amount (x) low, the

    		•
  • Q : Quantity supply or demand to changes in

    When a measure of the responsiveness of one variable to other (for example, quantity supplied [or demanded] to changes within price), elasticity: (w) provides no criterion for identifying responsiveness. (x) depends on the units used to express change

    		•
  • Q : Quantity demands equivalent quantity

    These supply and demand curves for sugar propose that the: (1) demand price exceeds the supply price at quantity Q2. (2) technology should advance to allow output to develop to Q4. (3) quantity demanded equals quantity supplied at P1.

    		•