w9sol - Economics 11: Microeconomic Theory 1 Professor...

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Economics 11: Microeconomic Theory 1 Professor Christian Hellwig Exercises Week 9 ANSWERS 1) The demand for portable radios is given by: Q=5000-100P. The local supply curve is given by: Q=150P. a) Find the market equilibrium. b) Now suppose that radios can be imported at a price of $10 per unit. Find the market equilibrium and the amount of radios imported. c) Now suppose that the local producers convince the government to impose a tariff of $5 per radio. Find the market equilibrium, the total revenue of the tariff and the effect on the consumer and producer surplus. Answer a) Domestic equilibrium: 150P=5000-100P P=20, Q=3000 b) Price drops to 10, Q=4000 Domestic production: 150*10=1500 Imports=2500 c) Price rises to 15, Q=3500 Domestic production=150*15=2250 Imports=1250, Tariff revenues=6250 CS with no tariff=0.5*4000*(50-10)=80000 CS with tariff=0.5*3500*(50-15)=61250 Loss=18750 Transfer to producers: 5*1500+0.5*(2250-1500)*(15-10)=9375 Deadweight loss= Total loss-Tariffs-Transfers to producers=3125 3) Suppose that Robinson Crusoe produces and consumes fish (F) and Coconuts(C) He has 200 hours to work and he is indifferent as to whether he spends time fishing or gathering coconuts. Robinson production for fish and coconuts are given by:
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This note was uploaded on 04/05/2009 for the course ECON 11 taught by Professor Cunningham during the Spring '08 term at UCLA.

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w9sol - Economics 11: Microeconomic Theory 1 Professor...

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