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 $ (c) Producer surplus at the Pw price is $ -(2 points) d) Suppose the government imposes an export tax equal to (). This country will export (2 points) units at the after-tax price of Pw-t. (2 points) (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) (h) The total revenue from the tax is $- (2 points) (2 points) (2 points) (i) The deadweight loss fronm the tax is $ (2 points) - Sd 65 60 50 Pw Pw -t 10 Dd 0 50 100 220 270 Q(in thousands)

Explanation / Answer

a)UNder free trade , this country will export 220 units at Pw price.  

b) COnsuemr surplus at Pw price is $125 ( because CS = 1/2 * (65-60) * 50 = 125)

c) Producer surplus at Pw price is $1250 ( because PS = 1/2 * (60-10) * 50=1250)

d) Suppose the government imposes an export tax equal to (T) . This country will export 120 units after a tax price.

e) COnsumer surplus is $750. ( CS = 1/2 * (65-50) * 100 = 750)

F) PS is $2000 ( PS = 1/2 * ( 50-10) * 100 = 2000)

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