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 9P
To determine
Impact of increase in price of wheat on
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Assume that Canada is an importer of televisions and that there are no trade restrictions. Canadian consumers buy 1.2 million televisions per year, of which 600,000 are produced domestically and 600,000 are imported.
Suppose that a technological advance among Japanese television manufacturers causes the world price to fall $800 to $700. Draw a graph to show how this change affects the welfare of Canadian consumers and Canadian producers and how it affects total surplus in Canada. Label the diagram carefully to show all the areas using letters of alphabets. (Do not shade the areas).
After the fall in price, consumers buy 1.4 million televisions, of which 400,000 are produced domestically and 1 million are imported. Calculate the change (this will be only the area either gained or lost by consumers and producers) in consumer surplus, producer surplus and total surplus due to price reduction. Provide numerical answers by calculating the area of change in surplus due to fall in…
Price
10
Price at which good sells = 7.25
Price at which good sells = 6
Marginal cost of producing
amount traded = 4
Marginal cost of producing
amount traded = 2.75
Price
Price
gap=t gap=t
4,000 6,000
Quantity
Figure 18.3 The market for cars: Price gaps reflect trade costs.
The exporter's
supply curve
The consumer's
demand curve
15,000
Consider again this same graph:
Price
8
7
6
5
4
3
2
0
1
10 20
30
40
Tariff
Domestic
demand
80
Domestic
supply
70
50 60
World
price
Quantity
Now let's say the economy opens to trade which is initially
free. Assume we're dealing with a small economy. Calculate
consumer surplus, carefully following all numeric
instructions.
Chapter 8 Solutions
Microeconomics (2nd Edition) (Pearson Series in Economics)
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- 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…arrow_forward1. The domestic demand (QD) and supply (Qs) for strawberries in Canada are given respectively by QD = 800 – 25P where P is the price per box of strawberries. and Qs = -40 + 5P a) What would be the equilibrium price and quantity if Canada could not trade with any other country for strawberries?arrow_forwardFigure 7-2 Price (dollars per pound) $3.00 2.50 1.75 0.50 12 18 26 38 45 U.S. Supply U.S. Demand Quantity of coffee (millions of pounds) Suppose the U.S. government imposes a $0.75 per pound tariff on coffee imports. Figure 7-2 shows the impact of this tariff. Refer to Figure 7-2. Without the tariff in place, the United States consumes 12 million pounds of coffee. Pw+tariff World price (P 26 million pounds of coffee. 33 million pounds of coffee. 45 million pounds of coffee.arrow_forward
- Vietnam has a policy of free trade in motorcycles which are sold in world markets at a price of 10,000 per motorcycle. Under free trade, Vietnam produces 100,000 motorcycles and imports 100,000 motorcycles. To provide some protection to the domestic industry, Vietnam imposes an import tariff of $1500 per motorcycle. With this tariff in place, production in Vietnam rises by 5,000 motorcycles and consumption drops by the same amount. Calculate the effects of the tariff on: a. Consumer Surplus b. Producer Surplus c. Government Revenues d. Overall Welfare e. If the tariff imposed by the Vietnamese had led to small reduction in world prices of, say, 250 dollars, how, qualitatively, would the welfare calculations (a), (b), (c) and (d) above change?arrow_forwardThe domestic supply and demand equations for good A are given by Qs= P - 60 and Qd= 360-2P. The world price of the good is $90. At the current world price, how much of good A is produced domestically and how much is consumed? How much of the good is the country importing from the world? Graph the inverse domestic supply and demand equations with the world price. Show on the graph and calculate the producer surplus and consumer surplus. Suppose the government wants to support domestic producers by imposing a tariff of $30 per unit of good A imported. Compute the effect on producer and consumer surplus, the amount of revenue gained by the government and the deadweight loss. If you were a consumer of this good, would you vote for or against the new tariff? Explain your reasoning.arrow_forwardThe graph above is the U.S. market for some imported good. Supply is a flat curve. The U.S. can import the Chinese good for $40 and the Mexican good for $48. Assume the U.S. imposes $10 tariffs on each unit of the imported good. What will be the quantity imported? From which country? How your answer will change if the U.S. keep the $10 tariffs but join a trade bloc with Mexico? Will the country’s wellbeing increase or decrease? By how much (hint find the change in consumer surplus and the change in government revenue)? Explain your answers.arrow_forward
- The graph below represents the market for sugar in the U.S. The domestic supply and demand curves are drawn, the world price for sugar is indicated, and the effect of a tariff the US is imposing on sugar imports is shown. Use the graphic to calculate consumer surplus, producer surplus, economics surplus, government revenue, and deadweight loss. Do so under each of the following three situations: 1) no trade, 2) free trade, and 3) the sugar tariff.arrow_forward[India is the world’s largest consumer of sugar. Assume the world price for sugar is $750 per ton.] [Assume India currently has a tariff of $50 per ton on sugar and imports 7 million tons of sugar. Show this situation in a graph. Label the quantity demanded and the quantity supplied domestically and imports clearly on a graph. Explain your graph in 3-4 sentences. 2. [ Suppose India decides to remove the tariff, show the effect of this change on India’s imports on the graph. Clearly label the new domestic quantity demanded and the quantity supplied. You must use the same graph as you have drawn in answer to Part a to show this new scenario. How does this policy affect consumers, producers, and the government in India? You only have to state who benefits or harms from the policy. 3. [Label the areas in your graph and fill in the following table. With Tariff Free Trade (after the tariff is removed) Consumer Surplus Producer Surplus Government…arrow_forwardNow suppose the Zambian government decides to impose a tariff of $60 on each imported ton of soybeans. Under the tariff, the price Zambian consumers pay for a ton of soybeans becomes S tons of soybeans. and Zambia will import Use the following graph to show the effects of the $60 tariff. Use the black line (plus symbol) to indicate the world price plus the tariff. Then, use the green points (triangle symbols) to show the consumer surplus with the tariff and the purple triangle (diamond symbols) to show the producer surplus with the tariff. Lastly, use the orange quadrilateral (square symbols) to shade the area representing government revenue received from the tariff and the tan points (rectangle symbols) to shade the areas representing deadweight loss (DWL) caused by the tariff. PRICE (Dollars perton) 490 460 430 400 370 340 310 280 250 220 190 0 Domestic Demand Domestic Supply 20 40 60 80 100 120 140 QUANTITY (Tons of soybeans) P W 160 180 200 World Price Plus Tariff CS PS Government…arrow_forward
- Use Supply and Demand graphs to support your answer in each of the following cases: A: What happens to consumer, producer and total economic surplus when we import a good? B: What happens to consumer, producer and total economic surplus when we export a good? C: What happens to consumer, producer and total economic surplus if we impose a tariff on imports? D: What happens to consumer, producer and total economic surplus if we impose an export duty (tax paid by the producer) on exports. Do D For answers for A, B and C - https://www.bartleby.com/questions-and-answers/use-supply-and-demand-graphs-to-support-your-answer-in-each-of-the-following-cases-a-what-happens-to/83ac814e-a7b7-43aa-90ca-ef02bf2da559arrow_forwardUse Supply and Demand graphs to support your answer in each of the following cases: A: What happens to consumer, producer and total economic surplus when we import a good? B: What happens to consumer, producer and total economic surplus when we export a good? C: What happens to consumer, producer and total economic surplus if we impose a tariff on imports? D: What happens to consumer, producer and total economic surplus if we impose an export duty (tax paid by the producer) on exports.arrow_forwardAnswer the question using the 3 -step approach 7. What happens to the domestic market when suppliers start to gain comparative advantage and export cars. Who enjoys the economic surplus and who lose their share of the surplus?arrow_forward
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