1. Tariffs: The domestic demand curve for portable radios in Canada is given by Qa = 5000 - 100P where price P is measured in (Canadian) dollars and quantity Q is measured in radios per year. The domestic supply of radios from Canadian producers is Qs = 100P a. What are the domestic (no trade) equilibrium values of P and Q in this market? (5) b. Suppose portable radios can be imported at a world price of $10 per radio, and this supply of imports is perfectly elastic at this price. If trade were allowed, what would the new market equilibrium price be in Canada? How many radios would be produced domestically? How many would be imported? (Hint: First, determine whether the equilibrium price will be $10 or $25. Then, find out the quantity supplied and demanded domestically. The difference between the supply and demand will be the amount that needs to be imported.) (10) c. Suppose Canadian radio manufacturers successfully lobby the federal government to institute a tariff of $5 on each imported radio. Graph the market with this tariff in place. What is the equilibrium price in Canada after the tariff is implemented? How much tax revenue is collected? Clearly identify on the graph the change in (domestic) consumer surplus, the change in (domestic) producer surplus, and the deadweight loss due to the tariff (you don't need to calculate these values)(Hint: Again Find the new equilibrium price after tariff (give reasoning why this is the new equilibrium price) and determine the amount of imports, compare the change in the CS, PS based on your answers in part b and part c). (10)
1. Tariffs: The domestic demand curve for portable radios in Canada is given by Qa = 5000 - 100P where price P is measured in (Canadian) dollars and quantity Q is measured in radios per year. The domestic supply of radios from Canadian producers is Qs = 100P a. What are the domestic (no trade) equilibrium values of P and Q in this market? (5) b. Suppose portable radios can be imported at a world price of $10 per radio, and this supply of imports is perfectly elastic at this price. If trade were allowed, what would the new market equilibrium price be in Canada? How many radios would be produced domestically? How many would be imported? (Hint: First, determine whether the equilibrium price will be $10 or $25. Then, find out the quantity supplied and demanded domestically. The difference between the supply and demand will be the amount that needs to be imported.) (10) c. Suppose Canadian radio manufacturers successfully lobby the federal government to institute a tariff of $5 on each imported radio. Graph the market with this tariff in place. What is the equilibrium price in Canada after the tariff is implemented? How much tax revenue is collected? Clearly identify on the graph the change in (domestic) consumer surplus, the change in (domestic) producer surplus, and the deadweight loss due to the tariff (you don't need to calculate these values)(Hint: Again Find the new equilibrium price after tariff (give reasoning why this is the new equilibrium price) and determine the amount of imports, compare the change in the CS, PS based on your answers in part b and part c). (10)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1. Tariffs: The domestic demand curve for portable radios in Canada is given by
Qa
= 5000 - 100P
where price P is measured in (Canadian) dollars and quantity Q is measured in radios per
year. The domestic supply of radios from Canadian producers is
Qs = 100P
a. What are the domestic (no trade) equilibrium values of P and Q in this market? (5)
b. Suppose portable radios can be imported at a world price of $10 per radio, and this supply
of imports is perfectly elastic at this price. If trade were allowed, what would the new market
equilibrium price be in Canada? How many radios would be produced domestically? How
many would be imported? (Hint: First, determine whether the equilibrium price will be $10
or $25. Then, find out the quantity supplied and demanded domestically. The difference
between the supply and demand will be the amount that needs to be imported.) (10)
c. Suppose Canadian radio manufacturers successfully lobby the federal government to
institute a tariff of $5 on each imported radio. Graph the market with this tariff in place. What
is the equilibrium price in Canada after the tariff is implemented? How much tax revenue is
collected? Clearly identify on the graph the change in (domestic) consumer surplus, the
change in (domestic) producer surplus, and the deadweight loss due to the tariff (you don't
need to calculate these values)(Hint: Again Find the new equilibrium price after tariff (give
reasoning why this is the new equilibrium price) and determine the amount of imports,
compare the change in the CS, PS based on your answers in part b and part c). (10)
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