Question

In a small country, the demand curve is given as: Q=100-5P, supply curve: Q=3P-12, and the world price is $10.

What is the social surplus under free trade?

If the government impose a $2/unit tariff on the good, what is the deadweight loss?

Show the change in equilibrium and deadweight loss on a graph.

Answer 1

equation d = 100-5P Demand When pro d = 100 when 0=o = 20 By plotting this we get the domestic demand curre d = 31-12 Supply equation When = o p = 42 By plotting this, we get the domesti supply cuone. - Would price = $10 u 100-5 (16) i Od = 5o = 30-12 Ils - 18 Consumer the world supplus is the price and area above below the

demand curre. ES - 10.5 (20-10) (50) C.S = $250 & Consumes susplus under Producer surplus is the triangle a and area above the supply love a below the world price p. S = (0.5) (6-4) (18) IPS = $ 54 - Producer cuplus under fel toade Social surplus = CS t es = $(250 +54) Social susplus - $304 under free

hovernment impose a f 2 unit Now, the domestie &1lo+2) = $12. consumers paid For P - $12 Od = 100-5(12) for p = $12 Os = 3(12)-12 Ids - 24 C S = (0.5) (20-12) (40) ps (0.5) (12-4) (24)

Government Revenue - (12-10)/40-24) $327 Deadweight loss = 10.5) (12-16)/2448) +0.5)(12-1050-4) = 6+ lo = 316 20 Domesti DOL 12 lo Woolt price + tarift -Woold price - Domestic Demand 18 24 40 50 100 duantits. Govt Revenue