Suppose the demand for computers by Taiwanese consumers is given by P=6,000 - 2

Question

Suppose the demand for computers by Taiwanese consumers is given by
P=6,000 - 2 D Q ,
where QD is the annual quantity of computers demanded and P is the price
per computer in dollars.
The supply of computers by domestic Taiwanese producers is P = 2 S Q ,
where QS is the annual quantity of computers supplied.
a. Assuming that that the Taiwanese economy is closed to trade, find the
equilibrium ```price and quantity in the Taiwanese computer market.
b. Assume the economy opens to trade. If the world price of computers is $1,500,
find annual Taiwanese consumption, production, and imports of computers.
c. At the request of domestic producers, the Taiwanese government imposes a
tariff of 500 per imported computer. Find Taiwanese consumption, production,
and imports of computers after the imposition of the tariff. How much revenue
does the tariff raise for the government

Explanation / Answer

a. Set supply equal to demand. Demand: P=6,000 - 2Q Supply: P = 2Q 6,000 - 2Q = 2Q 6000 = 4Q Q = 6000/4 Q = 1500 P = 2*Q P=3000 b. At a world price of 1500, let's see how much is demanded. Demand: P=6,000 - 2Q 1500=6000 - 2Q Q = (1500-6000)/-2 Q = 2250. So this is total consumption. Now, let's see how much of this is produced by domestic producers. Supply: P = 2Q 1500 = 2Q Q = 750. So this is Taiwanese production. So, the difference between these must be imported. I = 2250-750 I = 1500 c. The tariff raises the world price by 500 to 2000. Let's see how much is consumed Demand: P=6,000 - 2Q 2000 = 6000 - 2Q Q = (2000-6000)/-2 Q = 2000, This is consumption. Let's see how much Taiwan produces. Supply: P = 2Q 2000 = 2Q Q = 1000 is Taiwanese production. The difference is imports. I = 2000-1000 I = 1000 The revenue raised by the tariff is the imports multiplied by the tariff. R = I*T R = 1000*500 R = 500,000

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