HW chap 15-4

Supposetheimportsupplycurveisinfinitelyelasticataprice

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Unformatted text preview: e wSingle 1/2 1/19/2014 Assignme nt Pr int Vie w both measured in billions of bushels per year. Suppose the import supply curve is infinitely elastic at a price of $3.50 per bushel. Instructions: Round all figures to two decimal places, as needed. a. Calculate consumer surplus, producer surplus, and aggregate surplus. Cons umer s urplus Am ount ($) 110.25 ± 0.05 billion Produc er s urplus 18.23 ± 0.05 billion Aggregate s urplus 128.48 ± 0.05 billion b. What would be the welfare effects of a tariff of $1.00 per bushel? New c ons umer s urplus Am ount ($) 90.25 ± 0.05 billion New produc er s urplus 34.23 ± 0.05 billion Gov ernment rev enue 0.5 ± 0.05 billion New aggregate s urplus Deadweight los s 124.98 ± 0.05 billion 3.5 ± 0.05 billion Explanation: a. With a world supply curve that is perfectly elastic at $3.50: QS = (5)(3.50) ­ 4 = 14 Qd = 28 ­ (2)(3.50) = 21 Consumer surplus is $110.25 billion, producer surplus is $18.23 billion, and aggregate surplus is $128.48 billion. b. With the tariff, the price rises by $1.00. QS = 19.00 Qd = 18.50 The new level of consumer surplus is $90.25 billion, and the new level of producer surplus is $34.23 billion. Government revenue is $0.50 billion. The new level of aggregate surplus is $124.98 billion. Thus, the deadweight loss is $3.50 billion. http://e z to.mhe c loud.mc gr a w- hill.c om/hm.tpx? todo= pr intvie wSingle 2/2...
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This note was uploaded on 01/22/2014 for the course ECO 3352 taught by Professor Ax during the Fall '13 term at Troy.

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