Q. 1. Suppose both supply and demand in a market are relatively inelastic. Will a tax placed on the product in market generate a relatively large or small deadweight loss? Why?
Q. 2. If the world price of a good exceeds the domestic price of
the good, will the country export or import the good. In this
scenario who gain from free trade: Domestic consumers or Domestic
producers? Explain.
1. When the demand and supply of goods is inelastic, the quantity of the good demanded and supplied doesn't change much with change in price. The imposition of a tax creates deadweight loss when the supply or demand of the good declines due to the distortionary tax. This happens because those beneficial transfers of goods does not take place due to the tax. When the supply and demand of the good does not change with the change in the after tax prices, there is no market distortion. Thus the deadweight loss due to tax will be negligible in this case.
2) If the world price of the good is greater than the doemstic price, domestic goods will be attractive in the world market due to the competitive prices. This will increase the doemstic exports of the good and reduce imports. Since the domestic producers will be able to sell in the world market at a higher price, they will be benefitted while the domestic consumers will be harmed due to higher prices than without trade.
Q. 1. Suppose both supply and demand in a market are relatively inelastic. Will a tax...
If the world price of a good exceeds the domestic price of the good, will the country export or import the good. In this scenario who gain from free trade: Domestic consumers or Domestic producers? Explain. use text and not papers or toilet paper
Question 1: In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P-12. Compute the total social surplus of this market. If the government impose a tax on the producers, and the tax rate is $2 per unit produced. What is the deadweight loss? If the government impose a tax on the consumers, and the tax rate is $2 per unit purchased, graphically show the change in the market equilibrium and the...
Assume the market can be described by the following supply and demand curves. Qs=2p Qd=300-p A. Assume the world price is $110 and the small country allows free trade. Does this county import or export? How many units does this country import or export? What are the gains-to-trade allowing free trade compared to no-trade? Assume the world price is $60 and the small country allows free trade. Does this county import or export? How many units does this country import...
The following graph shows the market for wheat in Canada, where Dc is the demand curve, Sc is the supply curve, and Pw is the free trade price of wheat. Assume that Canada is a relatively small producer of wheat, so changes in its output do not affect the world price of wheat. Also assume that Canada is currently open to free trade, and domestic consumers are able to purchase wheat at the world price with negligible transportation costs. Suppose...
The following graph shows the market for wheat in Canada, where Dc is the demand curve, Sc is the supply curve, and Pw is the free trade price of wheat. Assume that Canada is a relatively small producer of wheat, so changes in its output do not affect the world price of wheat. Also assume that Canada is currently open to free trade, and domestic consumers are able to purchase wheat at the world price with negligible transportation costs. Suppose...
Consider a model world consisting of two countries: A and B. The countries trade some e good in the international market. The respective suppy and demand curves of the wP and are described by - 480-12P and Q 280+8P(for country Ay lar necessary either work B92+ 6P (for country B). Please answer the following questions; wheren with fractions or round to the fourth decimal place trade some generic (a) In the absence of international trade, find domestic equilibria in the...
suppose a tax is imposed on a good that has relatively inelastic demand and relatively elastic supply. who will bear more of the burden tax, consumers or producers? Explain.
The diagram below represents the market for boxes of copy paper in a small country. Assume that the world price of a box of copy paper is $40. a. Redraw the supply and demand diagram for the domestic market under free trade. Label the relevant prices and quantities, i.e., the domestic price, production, and consumption. b. Draw a supply and demand diagram for the international market under free trade. Label the relevant prices and quantities, i.e., the P-axis intercepts, international...
4. Agricultural export subsidies in a small nation The following graph shows the market for wheat in Canada, where Dc is the demand curve, Sc is the supply curve, and Py is the free trade price of wheat, Assume that Canada is a relatively small prpducer of wheat, so changes in its output do not affect the world price of wheat. Also assume that Canada is currently open to free trade, and domestic consumers are able to purchase wheat at...
33. The following diagram shows the domestic demand and supply curves for sunglasses. Assume that the world price for sunglasses is $10 per unit. 60 50 45 40 35 30 20 15 10 200 400 600 800 1000 Part : With no trade allowed, what are the equilibrium price and equilibrium quantity for sunglasses? Part 2: If the country allows free trade, (a) how many sunglasses will domestic consumers demand and how many sunglasses will domestic producers produce? (b) Will...