Economics 1021A/B Study Guide - Quiz Guide: Economic Surplus, Demand Curve, Relative Price

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ECON 1021A/B Full Course Notes

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Small country: always a negative welfare effect, since there are no terms of trade gains, but only an efficiency loss. Large country: possible positive welfare effect if the terms of trade effect > efficiency loss. Import demand curve (for home): at each given price: md = d s. Export supply curve (for foreign): at each given price: xs* = s* - d* Home imposes an import tariff on foreign"s cars: Small country (no effect on world relative supply, demand, and prices) As a result of the tariff, imports decline. Large country (does have an effect on world relative supply, demand, and prices) Home"s prices rise to pw + t. lowers home"s demand and increases home"s supply. Home is large, this also affects world relative demand and supply. World relative demand decreases and world relative supply increases. This also changes foreign"s price: foreign"s price decreases.

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Trade Policy.

The demand for cars in Home is q = 30 â P and the supply of cars in Home is q = P. The demand for cars in Foreign is q = 10 â P and the supply of cars in Foreign is q = P.

a) Calculate the autarky equilibrium price and quantity in each country.

b) Who is the importer of cars and who is the exporter?

c) Write the import demand for Home and the export supply for Foreign.

d) Find the equilibrium world price under free trade. What is the amount of cars traded between the two countries?

e) Suppose the country that is the importer imposes a tariff of $2 per unit on car imports. Find the new equilibrium world price under the tariff. What is the amount of cars traded between the two countries now? Show this in a graph with the import demand for Home and the export supply for Foreign.

f) Look at figure 1 for Home and fill in the table below (with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

g) Look at figure 2 for Foreign and fill in the table below ((with letters, no numbers) with the consumer surplus, producer surplus, government revenue and total surplus before and after the tariff.

h) Does Home experience a terms of trade gain or loss as a result of the tariff? Does Foreign experience a terms of trade gain or loss as a result of the tariff?

carminerat489

The demand for computers in a certain country is given by D = 20000 â 300P; where P is the price of a computer. Supply by domestic computers producers is S = 10000 + 100P.

(a) Assuming that the economy is closed, find the equilibrium price and production quantity of computers.

(b) The economy opens to trade. The world price of a computer is $20. Find the domestic quantities demanded and supplied and the quantity of imports or exports. Who will support the opening of the computer market to trade and who will oppose it?

(c) The government imposes a tariff of $1 per computer. Find the effects on domestic quantities demanded and supplied and on the quantity of imports or exports. Also find the tariff revenue collected by government. Who will support the imposition of tariff and who will oppose it?

(d) Suppose the government imposes an import quota of 1600 computers. Find the equilibrium price in the domestic computer market, as well as the quantities produced by domestic firms and purchased by domestic consumers.

PLease explain how you got your answers! :)

The domestic demand function for portable radios is given by Q=5,000-100P, where price (p) is measured in dollars and quantity is measured in thousands of radios per year. The domestic supply curve for radios is given by Q=150P. Suppose portable radios can be imported at a world rpice of $10 per radio.

a) If trade were completely free, how many radios would be imported?

b) The government imposed a $5 tariff on portable radios. How would this atriff change the market equilibrium? How many radios would be imported?

c) What is the change in net producer's surplus resulting fromthis tariff?

d) what is the change in net consumer's surplus resulting from this tariff?

e) What is the deadweight loss resulting from this tariff?

f) Instead of imposinga tariff, the government reached an agreement with foreign suppliers to "voluntarily" limit the portable radios they export to 1,250 per year. What is the deadweight loss resulting from this agreement?

indigotrout976

Economics 1021A/B Study Guide - Quiz Guide: Economic Surplus, Demand Curve, Relative Price

ECON 1021A/B Full Course Notes

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