Homework 3 Answer Key

Homework 3 Answer Key - Economics 101 Fall 2007 Answers to...

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Economics 101 Fall 2007 Answers to Homework # 3: 1. a. If this economy is closed to world trade, the equilibrium quantity is 20 and the price is $60. The consumer surplus is (1/2)*20*(100-60)= $400. The producer surplus is (1/2)*20*60= $600. b. The world price is lower than the equilibrium price, so we know that this country will import printers. At a price of $30, consumers want to buy 35 units and domestic suppliers want to sell 10 units. Thus, the country will import 25 units. Consumer surplus equals (1/2)*35*(100-30)= $1225. Producer surplus equals (1/2)*10*30= $150. Deadweight loss is $0. c. This tariff raises the effective world price to $42. At this price, consumers demand 29 printers, and domestic suppliers are willing to sell 14 printers. Thus, 15 printers are imported. Consumer surplus equals (1/2)*29*(100-42)= $841, and producer surplus equals (1/2)*14*42= $294. Government revenue is $12 per import, so it equals $180. Thus, total welfare, which is consumer surplus plus producer surplus plus government revenue, equals $1,315. In part (b), total welfare equaled consumer surplus plus producer surplus, which equals $1375. Thus the deadweight loss, which is the lost welfare, equals 1375-1315= $60. d. A quota means that they can only import 15 units. We need to solve for a price where the difference between the quantity demanded and the quantity supplied is 15. Thus, (100-
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This note was uploaded on 03/30/2008 for the course ECON 101 taught by Professor Hansen during the Fall '07 term at Wisconsin.

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Homework 3 Answer Key - Economics 101 Fall 2007 Answers to...

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