Question

1. A firm raises the price it charges. The firm's total revenue increases. What can we conclude about the price elasticity of demand?

A) Demand is elastic.

B) Demand is unit elastic..

C) Demand is inelastic

D) Demand is perfectly elastic.

Price (dollars per T-shirt) Dus 20 35 45 60 Quantity (millions of T-shirts per year)

From the Graph above ...

2. The world price of a T-shirt is $5. The U.S. government imposes a $2 per unit tariff on imported T-shirts. The amount of imported T-shirts before tariff is __________and the amount of imported T-shirts after tariff is__________

a. 40,10

b. 60,45

c.20,35

d. 60,35

3. The figure above shows that as a result of the tariff, the price of a T-shirt in the United States ________, and the quantity of T-shirts bought ________. The quantity of T-shirts produced in the United States ________, and the quantity of T-shirts imported ________.

A) rises by $2; decreases by 15 million per year; increases by 15 million per year; decreases by 30 million per year

B) rises by $2; increases by 15 million per year; increases by 15 million per year; increases by 15 million per year

C) falls by $2; increases by 5 million per year; decreases by 15 million per year; decreases by 30 million per year

D) does not change; decreases by 5 million per year; decreases by 30 million per year; increases by 30 million per year

4. The figure above shows that the government revenue from the tariff is

A) $20 million per year.

B) $30 million per year.

C) $15 million per year.

D) $55 million per year.

5. The figure above shows that the deadweight loss from the tariff is

A) $20 million per year.

B) $30 million per year.

C) $15 million per year.

D) $55 million per year.

Answer 1

1. Demand is inelastic ( option c, quantity demanded doesn't change much in comparison to price)

2. Imports = Demand - Supply

Option a is correct (before tariff imports = 60 - 20)

3.

Option a is correct

Price rises by $ 2, quantity bought decreases by= 60 - 45 = 15 mn and quantity produced increases by = 35 - 20 = 15 mn. Imports decrease by = 40 - 10 = 30 mn

4.

Government revenue = 2 x (45 - 35) = 20 mn (= tariff x imports)

5.

Deadweight loss = consumption loss + production loss

DWL = 0.5 x (7-5) x (60-45) + 0.5 x 2 x (35 - 20) = 30 mn