Question

4. Kawmin is a small country that produces and consumes jelly beans. The world price of jelly beans is $1 per bag, and Kawmin's domestic demand and supply for jelly beans are governed by the following equations: Demand: Q” = 8-P Supply: Q* =P where P is in dollars per bag and Q is in bags of jelly beans. a. Draw a well - labelled graph of the situation in Kawmin if the nation does not allow trade. Calculate the following (recalling that the area of a triangle is x base x helght): the equilibrium price and quantity, consumer surplus, producer surplus, and total surplus. b. Kawmin then opens the market to trade. Draw another graph to describe the new situation in the jelly bean market. Calculate the equilibrium price, quantities of consumption and production, imports, consumer surplus, producer surplus, and total surplus. c. After a while, the czar of Kawmin responds to the pleas of jelly bean producers by placing a $1 per bag tariff on jelly bean imports. On a graph, show the effects of this tariff. Calculate the equilibrium price, quantities of consumption and production, imports, consumer surplus, producer surplus, government revenue, and total surplus. d. What are the gains from opening up trade? What are the deadweight losses from restricting trade with the tariff? Give numerical answers. 12 VÀO ooh ere to search

Answer 1

Answer:

Given that,

$\rightarrow$Kawmin is a small country that produces and consumes jelly beans.The world price of jelly beans is $1 per bag,and Kawmin's domestic demand and supply for jelly beans are governed by following equations:

(a)

Following equations give the demand and supply of the country:

$Q^D$=8-P

$Q^S$=P

The equillibrium of the country is obtained by equating the demand with the supply.

Substituting the equations, we get

8 - P= P

P + P= 8

2P = 8

P= 4

Therefore, the equilibrium price is $\boxed{\$4}$ .

Substituting the equilibrium price in either of the equations,we get the equilibrium quantity.

$Q^D$= 8 - P

= 8 - 4

= 4

Therefore, the equilibrium quantity is.

The following diagram represents the market situation of the country in the absence of trade.

The diagram represents the consumer surplus and the producer surplus.

Here, the base of this triangle is 4 units and the height is 4 units.

Therefore,

Consumer surplus = 

= 1/2 $\times$ 4 $\times$ (8-4)

=1/2 $\times$ 4 $\times$ 4

=

Producer surplus = 

=1/2 $\times$ 4 $\times$ 4

= 

Total surplus = Consumer surplus + Producer surplus

= $8 + $8

=

(b)

If the market opens for trade ,it is given that it trades for $1 per bag.

Substituting this price in the demand, supply equations we get the demand quantity and the supply quantity.

Quantity demanded ($Q^D$) = 8-P

= 8 - 1

=

Quantity demanded $Q^S$ = P

= $\boxed{1}$

We observe that the quantity demanded exceeds the quantity supplied at a price of 1.

Therefore,the defic it is imported from other countries.

Quantity of imports = 

= 7 - 1

=

The open for trade results in the following demand and supply:

Therefore,considering the triangle of consumer surplus, the base is 7 units and the height is 7 units.

Consumer surplus = 

= 1/2 $\times$ 7 $\times$ (8-1)

=1/2 $\times$ 7 $\times$ 7

= 

Producer surplus = 

= 1/2 $\times$ 1 $\times$ 1

=

Total surplus = Consumer surplus + Producer surplus

= $24.50 + $0.50

=

(c)

Now, a tariff is imposed on the imports. This adds to the price of $1 making it $2 overall.

This is shown in the demand supply graph below:

Substituting the new price of $2 is substituted in the demand and supply equations to obtain the quantity demanded and supplied at this price.

Quantity demanded ($Q^D$) = 8 - P

= 8 - P

= 

Quantity demanded ($Q^S$) = P

=

We observe that the quantity demanded exceeds the quantity supplied .

Therefore,the defic it is covered through the imports.

Quantity of imports = 

= 6 - 2

= $\boxed{4}$

Now, calculating the consumer surplus and the producer surplus indicated in the graph.

Consumer surplus = 

= 1/2 $\times$ 6 $\times$ (8-2)

=1/2 $\times$ 6 $\times$ 6

= 

Producer surplus = 

= 1/2 $\times$ 2 $\times$ 2

=

Government revenue = Total imports $\times$ Tariff rate

= 

= 1/2 $\times$ (6-2) $\times$ (2-1)

=$\boxed{\$4}$

Total surplus = Consumer surplus + Producer surplus + government revenue

= $18 + $2 + $4

= 

(d)

We observe that with the markets were opened up for trade; there is an increase in total surplus from $16 when there is no trade to $25 when the trade started to take place.

Gain from trade = Total surplus after trade - Total surplus without trade

= $25 - $16

=

Dead weight loss is the allocative inefficiency raised out of the tariff.

The dead weight loss of the tariff = Total suplus before tariff - Total surplus after tariff

= $25 - $24

=

Answer 2

Answer:

Given that,

$\rightarrow$Kawmin is a small country that produces and consumes jelly beans.The world price of jelly beans is $1 per bag,and Kawmin's domestic demand and supply for jelly beans are governed by following equations:

(a)

Following equations give the demand and supply of the country:

$Q^D$=8-P

$Q^S$=P

The equillibrium of the country is obtained by equating the demand with the supply.

QP QS

Substituting the equations, we get

8 - P= P

P + P= 8

2P = 8

P= 4

Therefore, the equilibrium price is .

| 4|

Substituting the equilibrium price in either of the equations,we get the equilibrium quantity.

$Q^D$= 8 - P

= 8 - 4

= 4

Therefore, the equilibrium quantity is.

4units

The following diagram represents the market situation of the country in the absence of trade.

The diagram represents the consumer surplus and the producer surplus.

Price ($) Supply 8 6 Consumer surplus E 4 Producer surplus 2 Demand 4 6 8 Quantity 0 2

Here, the base of this triangle is 4 units and the height is 4 units.

Therefore,

Consumer surplus =

- xbxh. 2

= 1/2 $\times$ 4 $\times$ (8-4)

=1/2 $\times$ 4 $\times$ 4

=

| 8|

Producer surplus =

- xbxh. 2

=1/2 $\times$ 4 $\times$ 4

=

| 8|

Total surplus = Consumer surplus + Producer surplus

= $8 + $8

=

| $16

(b)

If the market opens for trade ,it is given that it trades for $1 per bag.

Substituting this price in the demand, supply equations we get the demand quantity and the supply quantity.

Quantity demanded ($Q^D$) = 8-P

= 8 - 1

=

17

Quantity demanded $Q^S$ = P

= $\boxed{1}$

We observe that the quantity demanded exceeds the quantity supplied at a price of 1.

Therefore,the defic it is imported from other countries.

Quantity of imports =

so - GO

= 7 - 1

=

16

The open for trade results in the following demand and supply:

Price ($) Supply 8 6 E 4 2 Consumer surplus World price $1 Demand Producer surplus 1 2 4 0 | 6 7 8 Quantity

Therefore,considering the triangle of consumer surplus, the base is 7 units and the height is 7 units.

Consumer surplus =

- xbxh. 2

= 1/2 $\times$ 7 $\times$ (8-1)

=1/2 $\times$ 7 $\times$ 7

=

|$24.5

Producer surplus =

- xbxh. 2

= 1/2 $\times$ 1 $\times$ 1

=

「$0.50

Total surplus = Consumer surplus + Producer surplus

= $24.50 + $0.50

=

| $25

(c)

Now, a tariff is imposed on the imports. This adds to the price of $1 making it $2 overall.

This is shown in the demand supply graph below:

Price ($) 8 Supply 6 E 4 Consumer surplus World price tariff 2 World price $11 Prodficer surplus 0 1 2 4 Demand 6 7 8 Quantity

Substituting the new price of $2 is substituted in the demand and supply equations to obtain the quantity demanded and supplied at this price.

Quantity demanded ($Q^D$) = 8 - P

= 8 - P

=

16

Quantity demanded ($Q^S$) = P

=

2

We observe that the quantity demanded exceeds the quantity supplied .

Therefore,the defic it is covered through the imports.

Quantity of imports =

so - GO

= 6 - 2

= $\boxed{4}$

Now, calculating the consumer surplus and the producer surplus indicated in the graph.

Consumer surplus =

- xbxh. 2

= 1/2 $\times$ 6 $\times$ (8-2)

=1/2 $\times$ 6 $\times$ 6

=

| $18|

Producer surplus =

- xbxh. 2

= 1/2 $\times$ 2 $\times$ 2

=

| $2

Government revenue = Total imports $\times$ Tariff rate

=

- xbxh. 2

= 1/2 $\times$ (6-2) $\times$ (2-1)

=

| 4|

Total surplus = Consumer surplus + Producer surplus + government revenue

= $18 + $2 + $4

=

「$24

(d)

We observe that with the markets were opened up for trade; there is an increase in total surplus from $16 when there is no trade to $25 when the trade started to take place.

Gain from trade = Total surplus after trade - Total surplus without trade

= $25 - $16

=

Dead weight loss is the allocative inefficiency raised out of the tariff.

The dead weight loss of the tariff = Total suplus before tariff - Total surplus after tariff

= $25 - $24

=

| $1

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