Question

True or False: In 2009, the U.S. government imposed a 35% tariff on tires imported from China. (The facts included in this problem are simplifications from the results of a much larger model.) Tires imported from China all are Tier 3 tires, the lowest-quality tires available in the U.S. Assume for this problem that the tariff was $20. The supply of tires from China is perfectly elastic. Domestic U,S. production of these țires is zero. Before the tariff, the price of these tires was $40. Demand is given by Q = 105 1.5P where Q is in millions of tires per year. Before the tariff, consumer surplus was $1,350.

Answer 1

Solution: Given govert Tariff imposed - 35ili con tires imported from china) Assumed tariff = $ 20. Domestic us production = 0. Before tariffe price = $40. Q=105-1.5p. -> p =. 105-6, _O consumer surplus is: Q=105-105p p = 40 cbefore tasnif) > Q=105- (1.5640) = 105-60 Q = 45 million from demand function, we have QO=0 from O p = 1050 IS = 105/1.5

p= $70 Consumer susplus - Area between demand are and market price en - boge) Cheight) = $(45') (70-40) = (30) (45) = 15$45 (6 = $675 million 0 45 - log 105 al Given cs=81350. (False). 1. Hence, giver valve is false?