The domestic demand curve for portable radios is given by Qd = 5000 - 100P, where Qd is the number of radios that would be purchased when the price is P. The domestic supply curve for radios is given by Qs = 150P, where Qs is the quantity of radios that would be produced domestically if the price were P. Suppose radios can be obtained in the world market at a price of $10 per radio. Domestic radio producers have successfully lobbied Congress to impose a tariff of $5 per radio.
a) Draw a graph illustrating the free trade equilibrium (with no tariff ). Clearly illustrate the equilibrium price.
b) By how much would the tariff increase producer surplus for domestic radio suppliers?
c) How much would the government collect in tariff revenues?
d) What is the deadweight loss from the tariff?