Question

In Exercise 4 in Chapter 2, we examined a vegetable fiber traded in a competitive world market and imported into the United States at a world price of $4.00 per pound. U.S. domestic supply and demand for various price levels are shown in the following table. U.S. Supply U.S. Demand Price (million pounds) (million pounds) 2.00 4.00 8.00 22 8.00 10.00 10 1 0 12.00 12 4 18 The demand curve is given by 04. Qp = 40.00 -3.00P. OB. Q. =3.00P. O C. Qp = 40.00 OD. Q. = 40.00-0.33P. O E. Qp = 40.00 +3.00P. The supply curve is given by OA. Qg = 1.00P. OB. Q5 = 2.00P. OC. Q5 = 1.333P. OD. 0g = 2.50P. O E. Qs = 1.00. If there are no restrictions on trade, how much will the U.S. import? The U.S. will import million units. (Enter your response rounded to two decimal places.) If the U.S. imposes a tariff of $4.00 per pound, what will be the U.S. price and level of imports? The U.S. price will be $ . (Enter your response rounded to two decimal places.) The U.S. will import million units. (Enter your response rounded to two decimal places.) How much revenue will the govemment eam from the tariff? The goverment will eam million. (Enter your response rounded to two decimal places.) How large is the deadweight loss? The deadweight loss equals million. (Enter your response rounded to two decimal places.) If the United States has no tariff but imposes an import quota of 8 million pounds, what will be the U.S. domestic price? The domestic price in the U.S. will be $ U. (Enter your response rounded to two decimal places.) What is the cost of this quota for U.S. consumers of the fiber? million. (Enter your response rounded to two decimal places.) The change in consumer surplus is $ What is the gain for U.S. producers? The change in producer surplus is million. (Enter your response rounded to two decimal places.)

Answer 1

from the given table of prices and quantity demanded we can see that the equation that satisfies the demand equation is A. Qd = 40.00 - 3.00P

the equation that best satisfies the supply equation is A. Qs = 1.00P

if there are no restricitions on trade then world price = U.S. price = $4.00 per pound

at this price U.S. supply = 4million pounds and U.S. demand = 28 million pounds

since there is an excess demand of 24.00 million pounds

therefore U.S. will import 24.00 million pounds in case of free trade

if U.S. imposes a tariff of $4.00 per pound then price of U.S. will now become world price + tariff imposed by U.S.

i.e. $4.00+ $4.00 = $8.00 per pound

at this price, U.S. supply = 8 million pounds and U.S. demand = 16 million pounds

since there is an excess demand of 8.00 million pounds

therefore U.S. will import 8.00 million pounds.

revenue earned by government = tariff per unit x amount of units imported

= $4.00 x 8.00 million pounds

= $32.00 million pounds