2. In the diagram given below Dd represents the domestic demand curve and Sd rep

Question

2. In the diagram given below Dd represents the domestic demand curve and Sd represents the domestic supply curve. Use this diagram to answer the following questions (a) Under free trade situation, this country will exportunits at Pw price.(2 points) (b) Consumer surplus at Pvv price is $ (2 points) (c) Producer surplus at the Pw price is $ (2 points) (d) Suppose the government imposes an export tax equal to (). This country will export (e) Consumer surplus at after-tax price of Pw-t is S (t) Producer surplus at after-tax price of Pw-t is$ (g) The amount of export tax per unit is$ 2 points) units at the after-tax price of Pw-t. (2 points) (2 points) : (2 points) (h) The total revenue from the tax is $- (2 points) (i) The deadweight loss from the tax is $ (2 points) Sd 65 60 50 Pw Pw-t 10 Dd 0 50 100 220 270 Q(in thousands)

Explanation / Answer

Answer

Q1)

a)

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

Qd=50

Qs=270

export=270-50=220 units

b)

Consumer surplus is the area below demand curve and above price

=0.5*(65-60)*50

=125

c)

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

=0.5*(60-10)*270

=6750

d)

at Pw-t=50

where

Qd=100 and Qs=220

export=220-100=120

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