Given the same demand and supply equations as in question #1, suppose the free t

ID: 1098080 • Letter: G

Question

Given the same demand and supply equations as in question #1, suppose the free trade (world)

price is $100.

a. Solve for the amount imported, consumer surplus, and producer surplus.

b. Suppose a per unit tariff of $30 is imposed by the government. Solve for the consumer

surplus, producer surplus, government revenue and total surplus with the tariff.

c. Solve for the change in consumer surplus, the change in producer surplus, the change in

government revenue and change in total surplus (i.e. the deadweight loss) from the free

trade case (without the tariff). [To do this, make the calculations using your answers in

3a, and calculate total surplus under free trade].

This is what I know:

Quantity demanded= 600

a) For balanced trade demand equal supply

QD = QS

so equilibrium price, P = $160 and QD = QS = 440

consumer surplus is an economic measure of this satisfaction so when P = 600 QD was 0 so surplus is (600 - 160) = $440

producer surplus = 160 - 50 = $110 ( when QS = 0 )

b) $30 tax is levied i.e. P becomes P + 30

so, QD = 570 - P and QS = 4P - 80

so equilibrium P = $130 and QS = QD = 440

consumer surplus = 570 - 130 = $440 ( when QD = 0 surplus = $570)

producer surplus = 130 - 20 = $110 ( when QS = 0 surplus = $130)

government revenue = (130 - 100)*440 = $13200

total surplus = 440 + 110 = $550

c) from (a) i.e. free trade

government revenue = (160 - 100)*440 = $26400

change in government revenue = $13200

total surplus = $550

change in total surplus = 0

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