Consider a small country in which the demand and supply curves of a
particular commodity are respectively given as:
Qd=120-20P (1)
Qs=20P (2)
where Qd is the quantity demanded, Qs the quantity supplied, and P the price.
(a) compute the equilibrium price and quantity under conditions of autarky and
the elasticity of demand (Ed ) and supply (Es ) at the point of equilibrium.
(b) Suppose now that the country decides to engage in trade for this particular
commodity and the international price Pw=1. Compute Qd , Qs, imports (M),
Ed , Es , and the changes in consumers’ surplus, producers’ surplus and in total
welfare. Discuss your answer.
(c) Lets assume that the country imposes a tariff t =1 per unit. Compute Qd , Qs ,
M, Ed , Es , and the changes in consumers’ surplus, producers’ surplus, total
welfare and in tariff revenue (TR) and compare the results with free trade case.
1
Expert's answer
2014-11-17T12:43:30-0500
Qd = 120 - 20P, P = 6 - Q/20 Qs = 20P, P = Q/20 (a) The equilibrium price and quantity under conditions of autarky will be in the point, where Qd = Qs 120 - 20P = 20P 40P = 120 Pe = $3 Qe = 20*3 = 60 units. The elasticity of demand (Ed) = Pd' = 1/20 and supply Es = Ps' = 1/20 too at the point of equilibrium. (b) If now the international price is Pw = $1. Qd = 120 - 20*1 = 100 units, Qs = 20*1 = 20 units, imports (M) = 120 - 20 = 100, Ed = 1/20, Es = 1/20, the consumers’ surplus will increase, producers’ surplus will decrease and total welfare will increase. (c) If the country imposes a tariff t =$1 per unit. Qd = 120 - 20*2 = 80 units, Qs = 20*2 = 40 units, M = 80 - 40 = 40 units, Ed = 1/20, Es = 1/20, consumers’ surplus will decrease, producers’ surplus will increase, total welfare will decrease, tariff revenue (TR) will increase.
Numbers and figures are an essential part of our world, necessary for almost everything we do every day. As important…
APPROVED BY CLIENTS
"assignmentexpert.com" is professional group of people in Math subjects! They did assignments in very high level of mathematical modelling in the best quality. Thanks a lot
Comments
Leave a comment