Question

can someone help me with this question please

2. (30 points) Suppose the world price for a good is 50 and the domestic demand and supply curves are given by the following equations: Demand: P = 100 - 20 Supply: P = 20 + 30

Answer 1

a) With the world price at 50

Consumption = 50 = 100-2Q, Q = 50/2 = 25

Production = 50 = 20+3Q, Q = 30/3 = 10

b) CS = 0.5*25*(100-50) = 625

PS = 0.5*10*(50-20) = 150

c) With the tariff, the price increases to 56

Consumption = 56 = 100-2Q, Q = 44/2 = 22

Production = 56 = 20+3Q, Q = 36/3 = 12

So, consumption decreases by 25-22 = 3

and Production increases by 12-10 = 2

d) CS after tariff = 0.5*22*(100-56) = 484

PS after tariff = 0.5*12*(56-20) = 216

so, CS decreases by 625-484 = 141

and PS increases by 216-150 = 66

e) Revenue = tariff*imports = 6*(22-12) = 60

f) Net cost will be the deadweight loss due to the tariff which is measured by taking into account the change in production and consumption and the amount of tariff

= 0.5*3*6 + 0.5*2*6

= 9+6

= 15