Percentage Tariff and Elastic Demand. Assume that the supply of imported persona

Question

Percentage Tariff and Elastic Demand. Assume that the supply of imported personal computers (PCs) from China is given by the expression: Qs=0.03125P (supply) where Q is the number of PCs sold (in thousands) and P is the PC price. Given the availability of PCs on the internet, assume that the demand for PCs is perfectly elastic at a price of $800. This means that the PC demand curve can be drawn as horizontal line that passes through $800 on the Y-axis.
A. Graph the PC demand and supply curve using price as a function of quantity (Q). On this same graph, draw supply curve based upon the assumption imports from China are subject to an 25% import tariff (tax) that is not imposes on imports from other countries.

Explanation / Answer

Qs=0.03125P

25%--------IMPORT TARIFF IS TO SHOFT CURVE -UPWARD

WITH 25%

P= 1.25 (32 Qs)= $ 40 Qs

-

equilibrium ----of pc price-----800 dollars-maintained before and after -import tariff

demand falls from 25,000 units to 20,000

price is same -----before and after -import tariff

decrease in out put-----------burden for import tariff

.

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