Question

curves are given by the following equations and displayed by the figure to the right: . Demand: P 90 -30 Supply. P 6+30 . At the world price, total domestic consumption is □ units. b At the world price, the total amount of home production is□units. d. If a tariff of 20 percent is imposed, consumption will become units and domestic production will become units

Answer 1

Consumer surplus is the area below demand curve and above market price. It is the difference between what consumers are willing to pay and what they actually pay.

CS = Area of triangle= ½ ( base x height)= ½ x(20-0)(90-30)=1/2 x20x60=1/2x1200=$600.

Producer surplus is the area above supply curve and below market price. It is the difference between what producers get and what is the minimum price at which they are willing to sell.

PS = Area of triangle= ½ ( base x height)= ½ x(8-0)(30-6)=1/2 x8x24=1/2x192=$96.

Total surplus is the sum of consumer surplus and producer surplus.

If tariff of 20% is imposed, the new price will be $36.

Domestic demand will be 18 units.

Domestic supply will be

Substituting P=36 in the supply equation (P=6+3Q)

36=6+3Q

36-6=3Q

Q=30/3= 10 units