Microeconomics (2nd Edition) (Pearson Series in Economics)
2nd Edition
ISBN: 9780134492049
Author: Daron Acemoglu, David Laibson, John List
Publisher: PEARSON
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Chapter 8, Problem 11P
To determine
The following areas when the domestic
(a)
(b) Producer surplus
(c) Government revenue
(d)
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The figure below shows the hypothetical domestic supply and demand for baseball caps in the country of Spain.
Domestic Supply and Demand for Baseball Caps
Spain
10
Sa
8
X
2
1
0
10 20 30 40 50 60 70 80 90 100
Baseball caps (thousands per month)
Suppose that the world price of baseball caps is €1 and there are no Import restrictions on this product. Assume that Spanish
consumers are indifferent between domestic and Imported baseball caps.
Instructions: Enter your answers as whole numbers.
a. What quantity of baseball caps will domestic suppliers supply to domestic consumers?
thousand
b. What quantity of baseball caps will be imported?
thousand
Now suppose a tariff of €3 is levied against each Imported baseball cap.
c. After the tariff is Implemented, what quantity of baseball caps will domestic suppliers supply to domestic consumers?
thousand
d. After the tariff Is Implemented, what quantity of baseball caps will be imported?
thousand
Price (€ per cap)
65
3₂
On the following graph, use the purple line (diamond symbol) to draw the Kazakhstan's supply curve including the quota SK+Q. (Hint: Draw this as a
straight line even though this curve should be equivalent to the domestic supply curve below the world price.) Then use the grey line (star symbol) to
indicate the new price of grapes with a quota of 120,000 grapes.
PRICE (Dollars per ton)
4000
3600
3200
2800
2400
2000
1600
Q1200
800
400
0
0
40
S.
K
D
K
Pw
80 120 160 200 240 280 320 360 400
QUANTITY (Thousands of tons)
SK+Q
The equivalent import tariff for Kazakhstan's grape import quota is $
Price with Quota
A
Change in PS
Quota Rents
DWL
(?)
In the previous graph, use the green area (triangle symbol) to shade the area that represents the effect of the quota on domestic producer surplus
(PS) relative to domestic producer surplus under free trade. Use the tan quadrilateral (dash symbols) to shade the area that represents the quota
rents. Finally, use the black areas (plus symbol) to indicate…
Consider the case of the following large country (all prices are measured in euros, and quantities are measured in single units):– Domestic demand curve: P = 3600 –3Q– Domestic supply curve: P = 2Q– World free trade price of imports = 140 euros per unit– When the tariff is introduced, domestic prices rise by exactly one third of the amount of the tariff.
Calculate the following. Also show your workout. Draw a diagram depicting the importing country market under free trade and with a tariff.
Under free trade equilibrium:The quantity consumed domestically: ___________________________________________________The quantity produced domestically: ___________________________________________________The quantity imported: ______________________________________________________________
With a 30 euro specific tariff :The equilibrium quantity consumed domestically: _________________________________________The equilibrium quantity produced domestically: __________________________________________The…
Chapter 8 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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