### Problem Statement**Question 6:**In an open economy, the domestic demand and supply for product X are given by D(P) = 120 - P and S(P) = 2P respectively. The country is small, and the world price of X is $70. The country currently has a $10 tariff on import and a $15 tariff on export. Find the country's deadweight loss.**Explanation:**- D(P) = 120 - P: Domestic demand equation for product X, where `P` is the price.- S(P) = 2P: Domestic supply equation for product X, where `P` is the price.- World price of X = $70.- $10 tariff on import.- $15 tariff on export.The task is to calculate the deadweight loss the country experiences due to the tariffs imposed on imports and exports. To solve this problem, follow these steps:### Calculation Steps:1. **Determine the Domestic Equilibrium:** - Set D(P) equal to S(P) to find the domestic equilibrium price and quantity. \[ 120 - P = 2P \] Solving for `P`: \[ 120 = 3P \] \[ P = 40 \] 2. **Calculate Domestic Equilibrium Quantity:** \[ Q = 120 - P = 120 - 40 = 80 \]3. **Determine Quantities with World Price:** - At the world price of $70, the domestic supply and demand are as follows: - Domestic demand: \[ Q_d = 120 - 70 = 50 \] - Domestic supply: \[ Q_s = 2 \times 70 = 140 \]4. **Calculate Imports and Exports Without Tariffs:** - Without tariffs, the country would import the difference between domestic demand and supply at the world price. \[ Imports = Q_d - Q_s = 50 - 140 = -90 \] Since the value is negative, this implies exports of 90 units.5. **Incorporate Tariffs:** - With a $10 import tariff, the adjusted import price would be $80 ($70 world price + $10 tariff). -

Deadweight loss is the cost to society because of the inefficient allocation of resources.

6) In an open economy, the domestic demand and supply for product X are given by D(P)=120-P and S(P)=2P respectively. The country is small and the world price of X is $70. The country currently has a $ 10 tariff on import and a $15 tariff on export. Find the country's deadweight loss.

6) In an open economy, the domestic demand and supply for product X are given by D(P)=120-P and S(P)=2P respectively. The country is small and the world price of X is $70. The country currently has a $ 10 tariff on import and a $15 tariff on export. Find the country's deadweight loss.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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