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Quiz10_F10_Key - c(3 Assuming that the government imposes a...

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3550 Quiz 10 Key F10 Last Name: ___ First Name: Suppose Domestic Demand: Pd=12- 1 12 Q & Domestic Supply: Ps=1+ 1 10 Q a. (2) Assuming NO international trade , find P & Q. Set Ps=Pd Î 1+ 1 10 Q=12- 1 12 Q Î 11 120 12 10 = + Q Î Q=60 & P=7 Solve for the Consumer Surplus and Producer Surplus. CS=($12-$7)*60*0.5=$150 & PS=($7-$1)*60*0.5=$180 b. (3) Assuming free trade , Pw=$5, find P, Q, and amounts of exports (or Imports) if any. P=Pw=5 & Qs=40 & Qd=84 Qd>Qs Î Qd-Qs=84-40=44 will be imported. Welfare will increase by ($7-$5)*44*0.5=$44 Just based on changes in total welfare, we cannot conclude whether free trade makes everyone in this country better off. Society got better off as a whole and consumers are better but producers got worse off.
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Unformatted text preview: c. (3) Assuming that the government imposes a $1 tariff on pens, find P, Q, and Exports (or Imports) if any. What is P* and Q S and Q D for pens after the tariff is imposed? Tariff on the imported goods will increase the market price P*=Pw+Tariff=$6. Qs=50 & Qd=72 Qd>Qs Qd-Qs=72-50=22 will be imported the amount of government revenue because of the tariff. $1*22=$22 the total amount of deadweight loss due to the tariff. $1*(84-72)*0.5+$1*(50-40)*0.5=$6+$5=$11 d. (2) Calculate the deadweight loss caused by the $1 tariff. (Or, illustrate the area.) P S 12 P*=7 1 D 40 50 60 72 84 Qd’ Qd” Q* Qs” Qs’ DWL PW=$5 Imports=44 PW-Tariff=$6...
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