# 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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