Week 10 - TUTORIAL 9 WEEK 10 MONOPOLY AND OTHER FORMS OF...

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TUTORIAL 9 WEEK 10 MONOPOLY AND OTHER FORMS OF IMPERFECT COMPETITION Reading : Ch 8 (pp211-223) Ch 9 Ch10 Questions Ch 8 (pp211-223) Review Questions 5 Problem: 5 Chapter 9 Review Questions: 3 Problem: 3 and 4 Ch10 Review Questions: 4 and 5 Problems: 2, 3, 4, 8 and 9 Questions Ch 8 (pp211-223) Review Questions 5 Problem: 5 Review Question 5 The tariff raises the domestic price of automobiles to the world price plus the tariff. Facing a higher domestic price for cars, domestic producers supply more cars and domestic consumers demand fewer cars. Imports, the difference between the domestic quantities demanded and supplied, decline. Consumers are hurt by the tariff, as they must pay more for cars, while domestic producers (who receive a higher price for their output) are helped. The government benefits by collecting tariff revenue. Overall, though, the tariff is inefficient; the costs to consumers exceed the benefits to producers and the government.
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Problem : 5 a To find the price of a car, set demand equal to supply: 12 000 – 200 P = 7000 + 50 P 5000 = 250 P P = 20 b At a world price of 18 units, domestic demand is 12 000 – 200(18) = 8400 cars, and domestic supply is 7000 + 50(18) = 7900 cars. The difference (500 cars) must be imported. Because the world price of cars is lower than the domestic price, domestic consumers will favour the opening to trade and domestic car producers will oppose it. c The domestic price of cars is now equal to the world price plus the tariff; that is, 18 + 1 = 19 units. Demand is 12 000 – 200(19) = 8200 and supply is 7000 + 50(19) = 7950. The difference, 250 cars, is imported (so imports have fallen). The tariff raises the domestic price so domestic consumers will oppose it and domestic car producers will support it. The government benefits from the tariff, as it collects 1 unit × 250 cars = 250 units of tariff revenue. d Suppose the government imposes a quota of 250 imported cars (the same number of imports as in part c). In this case, supply equals domestic supply plus 250, or 7250 + 50 P , and demand equals 12 000 – 200 P as before. Setting demand equal to supply, we get: 12 000 – 200 P = 7250 + 50 P
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4750 = 250 P P = 19 The domestic price is now the same as with the tariff (part c); and therefore, so are domestic production and demand. Imports are also the
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Week 10 - TUTORIAL 9 WEEK 10 MONOPOLY AND OTHER FORMS OF...

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