#36 Suppose that the world price for a good is 120 and the

ChemistryExplain is here for you to provide the important questions and answer “#36 Suppose that the world price for a good is 120 and the domestic demand-and-supply curves are given by the following equations” this question is coming from Economics.

Get the Free Online Chemistry Q&A Questions And Answers with explain. To crack any examinations and Interview tests these Chemistry Questions And Answers are very useful. Here we have uploaded the Free Online Chemistry Questions. Here we are also given the all chemistry topic.

ChemistryExplain team has covered all Topics related to inorganic, organic, physical chemistry, and others So, Prepare these Chemistry Questions and Answers with Explanation Pdf.

Question

#36 Suppose that the world price for a good is 120 and the domestic demand-and-supply curves are given by the following equations:

Demand: P = 200 – 8Q

Supply: P = 20 + 10Q

   a. How much is domestic consumption?

   b. How much is domestic production?

   c. Calculate the values of consumer and producer surplus.

   d. If a tariff of 30% is imposed, how much do consumption and domestic production change?

   e. What is the change in consumer and producer surplus?

   f. How much revenue does the government earn from the tariff?   g. What is the net national cost of the tariff?

Answer

From demand: QD = (200 - P)/8 = 25 - 0.125P

From supply: QS = (P - 20)/10 = 0.1P - 2

(a)

When P = 120,

QD = 25 - 0.125 x 120 = 25 - 15 = 10

(b)

When P = 120,

QS = 0.1 x 120 - 2 = 12 - 2 = 10

(c)

When QD = 0, P = 200

Consumer surplus (CS) = (1/2) x (200 - 120) x 10 = 5 x 80 = 400

When QS = 0, P = 20

Producer surplus (PS) = (1/2) x (120 - 20) x 10 = 5 x 100 = 500

(d)

After tariff, P = 120 x 1.3 = 156

QD = 25 - 0.125 x 165 = 25 - 19.5 = 5.5

So QD decreases by (10 - 5.5) = 4.5

QS = 0.1 x 156 - 2 = 15.6 - 2 = 13.6

So QS incraeses by (13.6 - 10) = 3.6

(e)

When P = 156,

CS = (1/2) x (200 - 156) x 5.5 = 2.75 x 44 = 121

So CS decreases by (400 - 121) = 279

PS = (1/2) x (156 - 20) x 13.6 = 6.8 x 136 = 924.8

So PS increases by (924.8 - 500) = 424.8

(f)

After tariff,

Import = QD - QS = 5.5 - 3.6 = 1.9

Unit tariff = 120 x 30% = 36

Tariff revenue = 36 x 1.9 = 68.4

(g)

Net national cost = Increase in PS - Decrease in CS - Tariff revenue = 424.8 - 279 - 68.4 = 77.4