The domestic demand and supply functions for a particular type of latex paint are Q d =
Question:
a. Suppose paint is freely traded. Create a spreadsheet with columns for price (p), domestic demand (D), domestic supply (S), imports (M), consumer surplus (CS), producer surplus (PS), and total surplus (TS). Let the price go from $4 to $28 in increments of $1. Fill in the spreadsheet.
b. Determine the domestic price, domestic consumption, domestic production, and the amount of imports in the free-trade equilibrium. Also calculate the consumer surplus, producer surplus, and the total surplus using the spreadsheet.
c. Now, the government bans importing paint. Determine the domestic price, domestic consumption, domestic production, consumer surplus, producer surplus, total surplus, and the dead-weight loss.
d. Next, instead of banning imports, the domestic government imposes an import quota of 3 million gallons. Determine the domestic price, domestic consumption, domestic production, consumer surplus, producer surplus, total surplus, and the dead-weight loss under such a quota.
Step by Step Answer:
Managerial Economics and Strategy
ISBN: 978-0134167879
2nd edition
Authors: Jeffrey M. Perloff, James A. Brander