1 Economics 101 Summer 2016 Homework #3 Due June 8, 2016 Directions: The homework will be collected in a box beforethe 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. Late homework will not be accepted so make plans ahead of time. Please show your work.Good luck! Please realize that you are essentially creating “your brand” when you submit this homework. Do you want your homework to convey that you are competent, careful, professional? Or, do you want to convey the image that you are careless, sloppy, and less than professional. For the rest of your life you will be creating your brand: please think about what you are saying about yourself when you do any work for someone else! 1. Consider a small economy whose market for pencils is described by the following demand and supply equations where P is the price per pencil and Q is the quantity of pencils: Domestic Demand: P = 20 – (1/20)Q Domestic Supply: P = (1/80)Q Suppose this economy opens the pencil market to trade and that the world price is $2 per pencil. a) Given this information and assuming that this domestic economy opens its pencil market to trade, find the value of imports, value of exports, value of consumer surplus with trade (CStrade), value of producers surplus with trade (PStrade), and the value of total surplus with trade (TStrade). Explain how you found your answers. Suppose a tariff of $1.00 per pencil is imposed on this good by the domestic economy’s government. b) Given this tariff, find the values of the following items. Show how you found your answers. Number of imports with tariff = _________________ Number of exports with tariff = ________________ Government tariff revenue = ____________________ CStariff = _____________________ PStariff = ___________________ DWL with tariff = ____________________ c) From the perspective of this domestic economy analyze the impact of this tariff. Who benefits from the tariff and how do they benefit? Who loses from the imposition of the tariff and what is their loss? 2. Consider a small economy whose market for dryers is described by the following demand and supply equations where P is the price per dryer and Q is the quantity of dryers: Domestic Demand: P = 500 - 10Q Domestic Supply: P = 100 + 10Q The world price is $150 for a dryer. a) Suppose this is initially a closed economy. Find the equilibrium price and equilibrium quantity of dryers in this closed economy.