homework 3 spring 2009 - Economics 101 Homework#3 Spring...

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Economics 101 Homework #3 Spring 2009 Due 03/03/2009 at beginning of lecture Directions: The homework will be collected in a box before the lecture. Please place your name , TA name and section number on top of the homework (legibly). Make sure you write your name as it appears on your ID so that you can receive the correct grade. Please remember the section number for the section you are registered, because you will need that number when you submit exams and homework. Late homework will not be accepted so make plans ahead of time. Please show your work . Good luck! Q1. Tariffs and Quotas The domestic demand and domestic supply curves for CD players in a small closed economy are as follows: Supply: 2 2 + = S Q P Demand: 32 + - = D Q P I. Closed Economy (no trade) a. Calculate the value of consumer surplus (CS) and producer surplus (PS) for the CD player market in this small closed economy. II. Open Economy with Free Trade. Use the following information to answer question a) ~ d). Suppose that this small closed economy is open to free trade and that the world price is $10 per CD player. a. With free trade, what is the quantity supplied by domestic producers? b. With free trade, what is the quantity demanded by domestic consumers? c. With free trade, how many CD players will the country import or export? d. Calculate the value of consumer surplus (CS trade ) and producer surplus (PS trade ). III. Open Economy with Tariff Use the following information to answer question a) ~ g). Suppose that the government imposes a tariff of $4 on each imported CD player, and the world price is $10 per CD player. a. What is the quantity supplied by domestic producers after the introduction of the tariff? b. What is the quantity demanded by domestic consumers after the introduction of the tariff? c. How many CD players will the country import or export after the introduction of the tariff? Page 1 of 5

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