Download 170HW2 market equilib+

Dr. Westerhold
Econ 170
Fall 2010
Name:_____________________________
HW2: Market Equilibrium with and without trade and Tariffs due Friday, October 1st
1A. Draw a market for US cars based on the following table of information:
Price
Quantity Demanded
Quantity Supplied
(Qd)
(Qs)
$35,000
0
200,000
$30,000
50,000
150,000
$25,000
100,000
100,000
$20,000
150,000
50,000
$15,000
200,000
0
Be sure to label demand and supply and the axis for full credit.
1B. What is the equilibrium price and quantity? Briefly explain how you determined this and label it
on your graph in part A.
1C. If a firm entered the market with a price of $20,000 what would occur? Is there a shortage or
surplus and of how much? How would the market adjust back to equilibrium?
2A. Create two graphs side by side one for the US and one for Mexico for the market for sugar based
on the data provided below. Be sure to label carefully for full credit.
US
Mexico
Price
Quantity Demanded Quantity Supplied Quantity Demanded
Quantity Supplied
$1.00
5
25
15
15
$0.65
10
20
20
10
$0.35
15
15
25
5
2B. Determine the equilibrium price and equilibrium quantity in the US in autarky (without trade).
How did you determine this?
2C. Determine the equilibrium price and equilibrium quantity in Mexico in autarky (without trade).
How did you determine this?
2D. Suppose the US and Mexico decide to trade. Which country will import sugar? Which country will
export sugar? Briefly explain your answer.
2E. What will be the world price of sugar? How did you determine this?
2F. How many units of sugar will US producers supply to the market? How many units will US
consumers purchase? How many units of sugar will then be exported or imported by the US
(depending on your answer to 2D)?
2G. How many units of sugar will Mexican producers supply to the market? How many units will
Mexican consumers purchase? How many units of sugar will then be exported or imported by Mexico
(depending on your answer to 2D)?
3. At equilibrium an item is selling for $30 a unit. At this price, consumers demand 100 units (Qe). If
the government imposes a specific tax of $1.50 per unit the equilibrium quantity demanded and
supplied will fall to 90 units and the price will rise to $31.
A. How much revenue does the government collect? Show your work.
B. How much of the total tax is “shifted forward”? Show your work.
C. How much of the total tax is “shifted backward”? Show your work.
D. Who bears the burden of this tax? Briefly explain.
4. Suppose US (a large country) initially had a price of steel of $500 a ton. The imposition of a
specific tariff per ton caused the domestic price of steel to rise to $650 a ton although the global price
of steel fell to $400 per ton. After the tariff the quantity of imports fell from 70,000 tons to 50,000
tons.
A. What is the amount of the specific tariff? Briefly explain.
B. Determine the total amount of tariff revenue collected by the US government? Show your work.
C. How much of the tariff is forward shifted? Provide the burden per unit and total burden. Show
your work.
D. How much of the tariff is backward shifted? Provide the burden per unit and total burden. Show
your work.
E. In a large country setting part of a tariff is forward shifted to __________ and part is backward
shifted to __________.
A) domestic consumers; foreign producers
B) domestic producers; foreign consumers
C) domestic consumers; domestic producers
D) domestic consumers; foreign consumers
E) the importing country’s government; the exporting country’s government
5. Use the following graph to answer all parts of Question 5:
Figure 1, Soccer balls in Denmark
Price
Supply Domestic
S1 Global
$15
S0 Global
$10
Demand Domestic
2
4
5
8
Quantity
(millions)
Assume a small country (Denmark) imposes a tariff resulting in a shift in global supply made available
in this country from S0Global to S1Global.
A. What is the amount of the tariff? Briefly explain.
B. How much tariff revenue will be collected? Show your work.
C. Are consumers better off or worse off with the tariff? Briefly explain.
D. Are domestic producers better off or worse off with the tariff? Briefly explain.
E. Overall, is this small country better off or worse off with the tariff? Briefly explain.
End of Assignment