Eco_1_Problem_Set_5_Akey

Eco_1_Problem_Set_5_Akey - Eco 1 Spring 2008 Problem Set 5...

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Eco 1 Spring 2008 Problem Set 5 Answer Key 1) Refer to the following graphs a) What are Consumer and Producer Surplus under Autarky (i.e. no trade)? What are they under international trade? Autarky - CS: B PS: G + C Trade - CS: B + C + E + F PS: G b) Is there a shortage of domestic production under international trade? If so, how much is imported and what is its value (i.e. what is Total Revenue for foreign firms in the domestic market)? Yes – the shortage is equal to Q 3 – Q 1 (which is imported), at a value of P world (Q 3 Q 1 ), or I + J.
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Eco 1 Spring 2008 Problem Set 5 Answer Key Suppose the government imposes a tariff on imports, thereby raising the world price. c) Complete the table below. Without Tariff With Tariff Quantity supplied by Domestic firms Q1 Q2 Quantity demanded by consumers Q4 Q3 Quantity imported Q4 – Q1 Q3 – Q2 Area of Consumer Surplus A + B + C + E + F + G A +B Area of Producer Surplus H H + C Area of tax revenue - F Area of Foreign firms' revenue J + K + L K Area of Deadweight Loss - E + G 3)
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Eco_1_Problem_Set_5_Akey - Eco 1 Spring 2008 Problem Set 5...

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