--%>
Assignment Help - homework help

Problem on deadweight loss

Assume that the domestic demand for television sets is explained by Q = 40,000 − 180P and that the supply is provided by Q = 20P. When televisions can be freely imported at a price of $160, then how many televisions would be generated in the domestic market? By how much domestic producer excess and deadweight losses modify when the government establishes a $20 tariff per television set? What when the tariff was $70?

E

Expert

Verified

Whenever televisions can be freely imported at a price of PW = $160, the domestic producers will generate 20(160) = 3200 television sets. The Domestic demand is 40,000 – 180*160 = 11,200 units.

705_2.jpg

Whenever the import duty of $20 is mentioned, the efficient price of importing televisions is $180. At such price, domestic firms will supply 20(180) = 3600 televisions, and demand will be 40,000 – 180(180) = 7600. The domestic producer surplus will raise by region C = (180 – 160)(3200) + 0.5(180 – 160)(3600 – 3200) = 68,000. The tariff makes a deadweight equivalent to region F + K = 0.5(180 – 160)(3600 – 3200) + 0.5(180 – 160)(11,200 – 7600) = 40,000.

The import duty of $70 increases the efficient import price to $230. You can observe from the graph that this is above the equilibrium price of $200 which would prevail in the domestic market devoid of any foreign trade.  Therefore, imposing such a big import duty is equivalent to banning trade in this industry together. The latest price will be $200 and the quantity demanded 4000. Associative to the free trade equilibrium, producer excess would now raise by area B + C = 0.5(200)(4000) – 0.5(160)(3200) = 144,000. The $70 import tariff makes a deadweight loss equivalent to region F + G + J + K = 0.5(200 – 160)(11,200 – 3200) = 160,000.

   Related Questions in Microeconomics

  • Q : Minimum Wage Laws problem Can someone

    Can someone please help me in finding out the accurate answer from the following question. The group least likely to be helped by the minimum wage law is: (1) African-American teenagers. (2) Experienced construction workers. (3) Skilled industrial workers. (4) Members

    		•
  • Q : Long run adjustments The resources of a

    The resources of a firm in the long run which has consistently suffered economic losses are probably to: (i) move into a more profitable industry. (ii) share losses equal to the firm’s fixed costs. (iii) be merged into a firm along with better m

    		•
  • Q : Monopsonist-marginal resource cost Can

    Can someone please help me in finding out the accurate answer from the following question. The monopsonist will hire the labor until labor's marginal resource cost equivalents the: (i) Marginal revenue product of the labor. (ii) Marginal physical product. (iii) Value

    		•
  • Q : Labor-Leisure Tradeoffs When leisure is

    When leisure is a normal good, in that case the demand for leisure: (1) varies directly with income. (2) has declined sharply from World War II. (3) is positively associated to the average age of the population. (4) shifts leftward as a result of tech

    		•
  • Q : Least consistent demand curve with

    The demand curve which is least consistent along with the existence of a substitution consequence is within: (w) Panel A. (x) Panel B. (y) Panel C. (z) Panel D.

    Q : Definition of law of demand Definition

    Definition of law of demand: It is the claim that, other things equivalent, the quantity demanded of a good drops/falls whenever the price of the good increases.

    		•
  • Q : Oligopoly and the law An illegal

    An illegal practice from an oligopolistic firm would be: (w) price leadership. (x) direct price collusion with rivals. (y) non-price competition. (z) mutual interdependence in price and output decisions. I need a g

    		•
  • Q : Official poverty rate for income

    For U.S. families official poverty rates are: (w) higher than in most other countries. (x) very similar for different types of families. (y) higher for the middle class than for lower class families. (z) lower than in most other countries if poverty i

    		•
  • Q : Problem regarding to First Mover

    Carlos and Ivana both are roommates and friends. Carlos and Ivana eat together regardless of who cooks. When this game is repeated almost daily, and on Thursday, Ivana is permitted to pick first, the probable result is that: (w) neither Carlos nor Ivana cook, nor do t

    		•
  • Q : Union-Nonunion Wage Differentials I

    I have a problem in economics on Union-Nonunion Wage Differentials. Please help me in the following question. All else equivalent, when employment in an industry raises, the average wage differential gap among union and non-union workers: (1) Narrows.

    		•