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ECON 040 Lecture Notes - Lecture 4: Economic Surplus, Demand Curve, International Trade

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School
College of The Sequoias
Department
Economics (ECON)
Course
ECON 040
Professor
Kasun

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Document Summary

Equilibrium price here is a no trade equilibrium. When the market opens to free trade, international consumers are added to demand, which shifts the demand curve to the right. P2 and d1 are the domestic comsumption(qd) When the market opens to free trade, international producers are added to supply. Domestic production is at p2 and s(qs) Tariff- a tax levied on goods imported into a country. The price of a good raises by the full value of the tariff price, which lowers the demand. Imports drop due to an increase in supply and a decrease in demand. Import quota- a specific limit or maximum quantity of a good permitted to be imported into a country during a given period. Import quotas have a similar impact, except areas i and j go to foreign produces rather than the us government. With tariffs, foreign produces with the lowest costs will import the most.

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Related Questions

THREE-PART QUESTION. SHOW ALL STEPS FOR EACH SECTION:

1) The equation for the demand curve for writing paper in Belgium is QD = 350- (P/2) The equation for the supply curve for writing paper in Belgium is QS= -200 + 5P. What is the equilibrium quantity if there is no international trade?

Select one:

a. 100

b. 200

c. 300

d. 400

e. None of the above

Refer to the question above.

2) What is the gain or loss to Belgium as a result of free trade if the world free trade price of writing paper is 120?

Select one:

a. Zero

b. 10

c. 1246

d. 110

e. None of the above.

3) Refer to the question above, if the world free trade price of writing paper is 120:

a. Belgium imports 180 units.

b. Belgium exports 120 units.

c. Belgium does not export or import at this price.

d. None of the above.

In the country of Wiknam, there is only one firm that produces and sells soccer ball. Initially, international trade is prohibited in the country. The following equations describe the monopolist's demand, marginal revenue, total cost and marginal cost: Demand: P = 10 - Q Marginal Revenue: MR = 10 - 2Q Total Cost: TC = 3 + Q + 0.5Q2 Marginal Cost: MC = 1 + Q Q stands for quantity and P is the price measured in Wiknamian dollars.

a) How many soccer balls does the monopolist produce? At what price are they sold? What is the monopolist's profit? Show all your calculations.

b) One day, the King of Wiknam decrees that henceforth, there will be free trade- either imports or exports- of soccer balls at the world price of $6. The firm now becomes a price taker in a competitive market. What happens to the domestic production of soccer balls? What happens to domestic consumption? Does Wiknam export or import soccer balls?

c) Suppose that the world price was not $6, but instead, happens to be exactly the same as the domestic price without trade as determined in part a) above. Would allowing trade change anything for the Wiknamian economy? Explain

in Iceland, demand and supply for television use (pay per view) by choice is described by the following demand and supply functions (v represents price per item)

Demand = 198 - 2v

Supply = -2 + 2v

The world market price for TV use is ISK 30. Price per item.

a) Calculate and draw a balance on a picture

i) if no foreign trade is allowed and foreign providers are excluded by excluding IP addresses.

(ii) if 14% VAT is levied on domestic broadcasters and foreign trade is prohibited. The tax is collected by consumers (no collection costs). What is the welfare loss from the tax? Show a picture.

iii) how is the tax burden divided into point ii) and what are its explanations?

b) Domestic tech nerds have avoided technical barriers to using foreign streaming services (VPN gymnastics) and the government does not have the ability to collect VAT on that use and subsequently decide to stop collecting VAT on domestic use: Calculate domestic production, domestic consumption and import. Draw a picture and calculate and benefit from the opening of a business (pretend that there was no VAT for freedom).

c) Due to the pressure of special interest groups of domestic producers, a decision is now made to impose a 30% duty on the world market price of imports (foreign streaming services), but the government has now found that traditional duty can be collected through credit card companies' transactions (no VAT).

i) What will be the price, imports, demand and domestic supply.

ii) How does producer and consumer profit change from point b)?

iii) What will be the macroeconomic loss due to duty compared to free trade without VAT?