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The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the world price line. Dd and Sd are the domestic demand and supply curves of computers respectively. 1) find the change in consumer surplus, producer surplus, and government revenue after the tariff is imposed. What is the net gain/ loss for the country?

The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the world price line. Dd and Sd are the domestic demand and supply curves of computers respectively. 1) find the change in consumer surplus, producer surplus, and government revenue after the tariff is imposed. What is the net gain/ loss for the country?

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The figure given below shows the market for computers in the U.S. The domestic price line inclusive of the tariff lies above the world price line. Dd and Sd are the domestic demand and supply curves of computers respectively.

1) find the change in consumer surplus, producer surplus, and government revenue after the tariff is imposed. What is the net gain/ loss for the country?

 

### Understanding Supply and Demand with Tariffs This graph illustrates the effects of tariffs on supply and demand in a market. The vertical axis represents the price (in dollars) while the horizontal axis represents quantity (in thousands of units). - **Demand Curve (\(D_d\))**: Slopes downward, indicating that as price decreases, the quantity demanded increases. - **Supply Curve (\(S_d\))**: Slopes upward, indicating that as price increases, the quantity supplied increases. ### Price Points - **World Price**: Set at $2,000. This horizontal line shows the price of the good without any tariffs applied. At this price, the quantity demanded is 200,000 units, while the quantity supplied is 100,000 units. - **Price with Tariff**: Raised to $2,400. This line shows the new market price when a tariff is applied. At this higher price, the quantity demanded decreases to 190,000 units and the quantity supplied increases to 120,000 units. ### Key Observations - **Impact on Quantity Demanded**: The introduction of the tariff decreases demand from 200,000 to 190,000 units. - **Impact on Quantity Supplied**: The tariff increases domestic supply from 100,000 to 120,000 units. ### Conclusion Tariffs lead to higher prices, which reduce the quantity demanded and increase domestic supply. This intervention can protect domestic industries but may result in higher prices for consumers.
Transcribed Image Text:### Understanding Supply and Demand with Tariffs This graph illustrates the effects of tariffs on supply and demand in a market. The vertical axis represents the price (in dollars) while the horizontal axis represents quantity (in thousands of units). - **Demand Curve (\(D_d\))**: Slopes downward, indicating that as price decreases, the quantity demanded increases. - **Supply Curve (\(S_d\))**: Slopes upward, indicating that as price increases, the quantity supplied increases. ### Price Points - **World Price**: Set at $2,000. This horizontal line shows the price of the good without any tariffs applied. At this price, the quantity demanded is 200,000 units, while the quantity supplied is 100,000 units. - **Price with Tariff**: Raised to $2,400. This line shows the new market price when a tariff is applied. At this higher price, the quantity demanded decreases to 190,000 units and the quantity supplied increases to 120,000 units. ### Key Observations - **Impact on Quantity Demanded**: The introduction of the tariff decreases demand from 200,000 to 190,000 units. - **Impact on Quantity Supplied**: The tariff increases domestic supply from 100,000 to 120,000 units. ### Conclusion Tariffs lead to higher prices, which reduce the quantity demanded and increase domestic supply. This intervention can protect domestic industries but may result in higher prices for consumers.
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