11. The following equations represent a small country\'s home supply and demand

Question

11. The following equations represent a small country's home supply and demand curves for widgets: s-o + 2P and D = 1,000-2P. A) Find the equilibrium price and quantity for widgets in autarky. B) Now let the world price be $200. Find domestic production, domestic consumption, and the amount of imports C) Derive the country's import demand curve (equation) for widgets. D) Let the country impose a 10% tariff. Calculate its deadweight losses (ie. area b+d). (Hint: Use the import demand equation, its much simpler with that) E) Calculate Government Revenue from this Tariff (i.e. area c)

Explanation / Answer

A) Q=S

1000-2P= 0+2P

1000=4P or P= 250.

Q= 1000-2*250 = 500

So the equilibrium price is $250 and quantity is 500.

B) when the word price $200.

Then domestic production = 0+2*200 = 400 widgets

Then domestic consumption = 1000-2*200= 600widgets

Amount of imports = 200 widgets

C) country imports demand cuve = D-S

MD= 1000-2P -2P

MD= 1000-4P

D) 10% tariff means producer has to pay 10% on equilibrium price.which increase price by 10% 250 *10/100 = 25 is tariff paid by producer . So producer recives $225 for one widget.

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