The following equations represent a small country's home supply and demand curves for widgets: S = 200
Question:
The following equations represent a small country's home supply and demand curves for widgets: S = 200 + 2P and D = 1,000 – 2P.
a. Find the equilibrium price and quantity for widgets in autarky.
b. Now let the world price be $100. Find domestic production, domestic consumption, and the amount of imports.
c. Derive the country's import demand curve (equation) for widgets.
d. Suppose the Supply curve is now S = 0 + 2P , the world price after opening up to traders 200 and the demand curve remains the same.If the country subsequently imposes a 20% tariff, calculate the change in producer surplus between free trade and the tariff implementation (hint: you need to find a new equilibrium price and quantity to calculate the required areas).
e. From d above, calculate the dead weight loss from this Tariff (i.e. area b+d, Hint: Use the import demand equation, its much simpler with that)
Expert Answer:
a At equilibrium Demand Supply 200 2P 1000 2P 2P 2P 1000 200 4P 800 P 8004 200 Quantity ... View the full answer
