Home Work 8 - Winter - 2019 - answer key.docx - Econ 3HH3...

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Econ 3HH3 Winter 2019 Home Assignment #8: Answer Key 1. (4 points) Consider the large Home country with the demand curve for tuna given by ( P is the price per 10kg, and Q is the quantity of tuna with 1 unit being 10 kg): P =400 – Q, and the Home supply curve given by P=4Q. Assume that the Foreign export supply curve is given by P=Qexp – 320. (a) Derive the Home import demand curve (derive the exact equation). Calculate the world price of 10 kg of tuna. How much is imported by Home at this price? Answer: Qdemanded = 400 - P, Qsupplied = (P/4), so M=Qdemanded – Qsupplied = 400 - P – (P/4) = 400 – 1.25P, or P = 320 – 0.8M Qexp = P +320 = M, so P +320 = 400 – 1.25P or 2.25P = 80, P = 35.6, M = 355.5 or 3,555 kg (f) Assume that the government at Home decided to use the import tariff of $10 . Calculate the new world price, the new imported quantity and the tariff revenues collected by the government. (Hint: use Figure 8.9.) Answer. New “X* + t” curve is P+tariff = Qexp - 320 + tariff = Qexp - 310. Qexp = M, so M - 310 = 320 – 0.8M or 1.8M=630 or M = 350.
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