a. Obviously the world price and domestic price will now be $20. Calculate the quantity produced and demanded domestically? b. Using graphs show the changes in CS (Consumer Surplus) and PS (Producer Surplus) compared to Free Trade. Show also the government revenue, which is tariff per t-shirt times the new level of imports. Who gains in comparison to Free Trade scenario? Who loses? What is the welfare gain or loss? Show by using graphs.
Suppose you have the following for white t-shirts market:
Market demand is P=125-(3/8)Q
Market supply is P=5+(1/8)Q.
there is now a global supply that is horizontal at $15. But the government now imposes a tariff of $5 per unit of t-shirt.
a. Obviously the world
produced and demanded domestically?
b. Using graphs show the changes in CS (
to Free Trade. Show also the government revenue, which is tariff per t-shirt times the new level of imports. Who gains in comparison to Free Trade scenario? Who loses? What is the welfare gain or loss? Show by using graphs.
If domestic price now is $20 then,
20= 125 -(3/8)Q
=> (3/8)Q = 125-20=105
=>= (105*8)/3 =280 -> Quantity demanded domestically
Also,
20=5+(1/8)Q
=>(1/8)Q=20-5 = 15
=> = 15*8 = 120 -> Quantity supplied / produced domestically.
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