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# discussionsectionhandout4answersfall2007 - Econ 102 Fall...

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Discussion Section Handout #4 Supply & Demand: Quotas and Tariffs Exercise #1: Consider a closed economy with the following supply and demand equations for watches. D: P = 50 – Q S: Q = 3/2*P a) Solve for the equilibrium quantity and price, consumer surplus, producer surplus, and total surplus and graph these below. Qe = 30 , Pe = 20 C. Surplus = (1/2)*(30)*(30) = \$450 P. Surplus = (1/2)*(20)*(30) = \$300 ; T. Surplus is \$750 50 P S 30 Q D 50 15 40 10 20 b) Now assume they open for trade, and the world price for watches is \$10. Draw the effect this has on supply and demand above. Determine consumer, producer and total surpluses for this open economy. Also determine the level of imports. Qd = 40 , Qs = 15, P = 10, Imports = 25, C. Surplus = (1/2)*(40)*(40) = \$800 P. Surplus = (1/2)*(10)*(15) = \$75 ; T. Surplus is \$875 c) Now, there \$5 tariff on imports, raising the price to \$15. Draw the effect this has on supply and demand below. Determine Qd, Qs, and the amount imported. Also determine

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