--%>
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 : Negative Rate of Return by Financial

    The financial investment probably to generate a negative rate of return is the: (w) cost of your college education. (x) purchase of a lottery ticket. (y) $25,000 each a group of business people paid to buy franchises within the American Football League into 1960 year.

    		•
  • Q : Elasticity and demand of monopolist

    When a monopolist produces output where demand is unitarily elastic, in that case marginal revenue equals: (1) price. (2) infinity. (3) negative infinity. (4) one. (5) zero. I need a good answer on the topic of

  • Q : Affect of total utility to marginal

    Whenever total utility is at a maximum, then marginal utility is: (1) Rising. (2) Reducing. (3) Zero. (4) Similar as total utility. Can someone help me in getting through this problem.

    		•
  • Q : Asymmetric Information-Efficiency of

    Asymmetric information is less difficult for the efficiency of laissez faire transactions whenever transactions: (i) Are voluntary and are predict to be repeated many times. (ii) Costs are relatively very high. (iii) Are regulated by the complex govt.

    		•
  • Q : Unexpected inventory growth of price

    These supply and demand curves within the sugar market specify that: (w) a price floor of P0 for sugar will cause a surplus. (x) a price ceiling of P2 will cause a shortage. (y) the market clears while quantity equals Q0

    		•
  • Q : Net income by negative income tax Under

    Under the negative income tax system demonstrated in this figure, a family of four along with no earned income would have a net after-tax income of: (1) $15,000 per year. (2) $10,000 per year. (3) $5,000 per year. (4) $2,500 per year. (5) $0 per year.

    		•
  • Q : Higher income elastic demand for

    For environmental quality the demand is income elastic for most people, that implies that prosperity and higher incomes tend to: (w) increase people’s concerns about air, water, and noise pollution. (x) reduce efforts to solve pollution problems

    		•
  • Q : Demand for product is most elastic at

    From these points in this figure, demand for cheesy fried grits is largely elastic at a price of: (w) P1 and quantity of Q3. (x) P2 and quantity of Q2. (y) P3 and quantity of Q1. (z) P4 and q

    		•
  • Q : Jurisdictional Strikes The Taft-Hartley

    The Taft-Hartley Act prohibited strikes against a firm over the issue of which of the two or more competing unions would symbolize the firm’s employees. These strikes are termed as: (i) Jurisdictional strikes. (ii) Strategic representation strikes. (iii) Wildcat

    		•
  • Q : Problem regarding Rational Ignorance

    Whenever decision makers select not to pursue further information as the expected reward for the searching for it does not surpass its expected cost, the outcome is: (1) Adverse choice. (2) Consumer exploitation. (3) Unintended effects. (4) Asymmetric information. (5)

    		•