7.2 The domestic demand and supply functions for a particular type of latex paint are Qd =...

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7.2 The domestic demand and supply functions for a particular type of latex paint are Qd = 14 - 0.5p and Qs = -4 + p, respectively. The price is measured in dollars per gallon and the quantities are measured in millions of gallons. The world price for the paint is p* = +8, at which the foreign producers are willing to sell unlimited quantities.

a. Suppose paint is freely traded. Create a spreadsheet with columns for price (p), domestic demand (D), domestic supply (S), imports (M), consumer surplus (CS), producer surplus (PS), and total surplus (TS). Let the price go from $4 to

$28 in increments of $1. Fill in the spreadsheet.

b. Determine the domestic price, domestic consumption, domestic production, and the amount of imports in the free-trade equilibrium.
Also calculate the consumer surplus, producer surplus, and the total surplus using the spreadsheet.

c. Now, the government bans importing paint.
Determine the domestic price, domestic consumption, domestic production, consumer surplus, producer surplus, total surplus, and the deadweight loss.

d. Next, instead of banning imports, the domestic government imposes an import quota of 3 million gallons. Determine the domestic price, domestic consumption, domestic production, consumer surplus, producer surplus, total surplus, and the deadweight loss under such a quota.

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Managerial Economics And Strategy

ISBN: 9780135640944

2nd Global Edition

Authors: Jeffrey M. Perloff, James A. Brander

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