1. Consider the following demand and supply equations for cell-phones in the domestic country: Supply: Qs = − 60 2 + 3 2 P Demand: Qd = 300 2 − 3 2 P where the price is measure in $/cell-phone and the quantity is measure in thousands of cell-phones. 1. Graph the supply and demand schedules for the domestic economy. Clearly label the y-intercepts for both the supply and demand equations.
2. Suppose the world price of cell-phones is $40/cell-phone (denoted by Pw). What is the domestic demand and domestic supply at the world price? How many cell-phones will be imported into the domestic economy at this price? Clearly show all calculations, and illustrate your answer using a well-labeled graph.
3. Calculate the consumer surplus (CS1) and the producer surplus (P S1) for the domestic economy. Clearly show all calculations.
4. Suppose the domestic government levies a tariff of $5/cell-phone (denoted by τ ). (a) What would happen to domestic demand and domestic supply once the tariff is imposed? What is the corresponding level of imports? Clearly show all calculations, and illustrate your answer using a well labeled graph. (b) Calculate the consumer surplus (CS2) and the producer surplus (P S2) for the domestic economy after the tariff is imposed. Clearly show all your calculations. 1 (c) Calculate the total loss/gain to the domestic economy with the imposition of the tariff. Clearly show all calculations. Label this loss/gain on a welllabeled graph.
5. Suppose the domestic government provides a subsidy of $5/cell-phone (denoted by s) rather than a tariff. (a) What would happen to domestic demand and domestic supply once the subsidy is established? What is the corresponding level of imports? Clearly show all calculations, and illustrate your answer using a well labeled graph. (b) Calculate the consumer surplus (CS3) and the producer surplus (P S3) for the domestic economy after the subsidy is established. Clearly show all your calculations. (c) Calculate the total loss/gain to the domestic economy with the subsidy. Clearly show all calculations. Label this loss/gain on a well-labeled graph.
6. Suppose the government imposes an import quota of 45,000 cell-phones (denoted by iq). (a) What would happen to domestic demand and domestic supply once the import quota is imposed? What is the corresponding level of imports? Clearly show all calculations, and illustrate your answer using a well labeled graph. (b) Calculate the consumer surplus (CS4) and the producer surplus (P S4) for the domestic economy after the import quota is established. Clearly show all your calculations. (c) Calculate the total loss/gain to the domestic economy with the import quota. Clearly show all calculations. Label this loss/gain on a welllabeled graph.