1. Use the diagram given below to answer the following questions (a) In the free

Question

1. Use the diagram given below to answer the following questions (a) In the free trade situation, this country will import (b) Consumer surplus at Pw price is s (c) Producer surplus at the Pw price is S (d) This country will import units at the after-tariff price Pw+t. (e) Consumer surplus at after-tariff price (Pw+t) is S_ (D Producer surplus at after-tariff price (Pw+) is s (g) The amount of tariff per unit is $ units at Pw The ad-valorem tariff rate as a percentage of free trade world price (Pw) is (h) The total revenue from tariff is S () The deadweight loss from the tariff is Sd Pw+t Pw 20 10 Dd 200 225 50 80

Explanation / Answer

Answer

Q1)

a)

Import=Quantity demanded by domestic customers at world price -quantity supplied at world price by domestic producer

Qd=225

Qs=50

Import=225-50=175 units

b)

Consumer surplus is the area below demand curve and above price

=0.5*(85-20)*225

=7312.5

c)

producer surplus is the area below price and above the supply curve

=0.5*(20-10)*50

=250

d)

at Pw+t=25

where

Qd=200 and Qd=80

import=200-80=120

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