Assume that Canada is an importer of televisions and that there are no trade restrictions. Canadian consumers buy 1.2 million televisions per year, of which 600,000 are produced domestically and 600,000 are imported. The initial world price is $600. [6 marks] Suppose that a technological advance among Japanese television manufacturers causes the world price to fall from $600 to $500. Draw a graph to show how this change affects the welfare of Canadian consumers and Canadian producers and how it affects total surplus in Canada. Label the diagram carefully to show all the areas using letters of alphabets. (Do not shade the areas). [7 marks] After the fall in price, consumers buy 1.4 million televisions, of which 400,000 are produced domestically and 1 million are imported. Calculate the change (this will be only the area either gained or lost by consumers and producers) in consumer surplus, producer surplus and total surplus due to price reduction). Provide numerical answers by calculating the area. Also clearly show it on the diagram you drew in part a) above. (do not draw a new diagram) [7 marks] If the government responded to fall in price by imposing a tariff of $100 on imported televisions, what would this do to the market? Show this on a new graph and calculate the government revenue that would be raised and the deadweight loss due to tariff. Would it be good policy from the standpoint of Canadian welfare? Who might support the policy (producers or consumers)? Give numerical answers for government revenue, loss in consumer surplus, gain in producer surplus and the dead weight loss. QUESTION 2 - [20 marks, 4 marks each part] Chapter 10, 11. (Please note, if your question is copied, I will give a zero grade). Note the equations, taxes and use all the equations and numbers as given in the question. The market for a particular chemical, called Negext is described by the following equations: Qd = 100 -5P Qs =5P Find the equilibrium price and quantity. Compute consumer surplus and producer surplus at the market equilibrium. For each unit of Negext produced, 5 units of pollution are emitted, and each unit of pollution imposes a cost on society of $1. Compute the total cost of pollution when the market is in equilibrium. Suppose that the government restricts emissions to 100 units of pollution. Graph the market under this constraint. Find the new price and quantity and show them on your graph. Suppose that instead of restricting pollution, the government imposes a tax on producers equal to $5 for each unit of chemical produced. Calculate the new equilibrium price and quantity and the cost of pollution. Which of the two policies would you recommend? Why? QUESTION 3 - [20 marks @ 4 each part] Chapter 13 &14 Market for apple pies in the city of Ectenia is competitive and has the following demand schedule: Price Quantity demanded $1 1200 pies 2 1100 3 1000 4 900 5 800 6 700 7 600 8 500 9 400 10 300 11 200 12 100 13 0 Each producer in the market has fixed cost of $9 and the following marginal cost: Quantity Marginal Cost 1 $2 2 4 3 6 4 8 5 10 6 12 Make a table that includes Output, Fixed Cost, Variable Cost, Total Cost, Average Total Cost and Marginal Cost for 1 to 6 pies for each producer. Clearly explain how you have calculated each column. (Note: Variable cost is not given and neither is the total cost, however, marginal cost is given that can be used to find the variable cost [cumulative addition of MC can give you AVC]; make sure to verify the marginal cost from your total cost.) If the price of a pie is $8, how many pies will be sold? How many pies each producer will make? How many producers are there? How much profit each producer earn? Show all your work and explain how you found each of the values. Is the situation described in (b) a long-run equilibrium? Why or why not? Explain all the conditions for a long run equilibrium and state whether each has met or not in this case. Suppose in the long-run, there is a free entry and exit. How much profit does each producer earn in the long-run equilibrium? What is the market price and number of pies each producer makes? How many pies are sold? How many producers are operating? Show all your work and explain how you find out the long-run price, quantity and the number of firms. QUESTION 4 - [20 marks] Chapter 14 Assume that the market for fertilizer is perfectly competitive. Firms in the market are producing output but they are experiencing economic losses. [Hint: It is possible in the short run that firms continue producing despite losses] [4 marks] Explain how ATC, AVC and MC are related (Note: the relationship of these cost curves is same whether there is loss or profit). [4 marks] Explain how the price of fertilizer compares to the ATC, AVC and MC of producing fertilizer. [You have to compare price with ATC, AVC and MC for a firm that is described in the question (one that is making losses but still producing)] [6 marks] Draw two graphs side by side (one for the firm and the other for the entire market) illustrating the present situation (the short run equilibrium). Carefully label the diagrams and explain what you draw for both diagrams and carefully explain the conditions under which the firm is operating despite making economic losses. [In this part, only show the short-run equilibrium for both the firm and the market. [Note: If you draw short and long run together on one diagram for this part, you will get a zero grade for both c) and d) parts. Make sure to follow the instructions.] [6 marks] Assuming there is no change in demand curve or in cost curves, explain what should happen in the long run to the price of fertilizer, marginal cost, average total cost, the quantity supplied by each firm, and the total quantity supplied to the market. Redraw the set of diagrams you drew in part c) and show the long-run equilibrium for the firm and the market. Each change on the diagrams should be explained step by step to qualify for full marks. [In this part, you will show both short run and long run, but no marks without step-by-step explanation.] QUESTION 5 - [20 marks @ 5 marks each part] Chapter 15 Only one firm (monopoly) produces and sells soccer balls in the country of Wiknam, and as the story begins, international trade in soccer balls is prohibited. The following equations describe the monopolist's demand, marginal revenue, total cost, and marginal cost: Demand: P = 10 - Q Marginal Revenue: MR= 10 - 2Q Total Cost: TC= 3 + Q + 0.5Q2 Marginal Cost: MC = 1 + Q Where Q is quantity and P is price measured in Wiknam dollars. How many soccer balls does the monopolist produce? At what price they are sold? What is the monopolist profit? Now assume that free trade is permitted in Wiknam, so soccer balls can be exported or imported. Note that by entering the world market, the firm is now a price taker, (no longer a monopoly). If the World Price = $6, what happens to domestic production? What happens to domestic consumption? Does Wiknam export or import soccer balls? How many? In Chapter 9, analysis of international trade, a country becomes an exporter when the price without trade is below the world price and an importer when the price without trade is above the world price. Does that conclusion hold based on your answer to parts a) and b) above? Explain Suppose that the world price is not $6 but instead happened to be exactly the same as domestic price without trade as determined in part a). Now if the country allow trade, would it change anything in the Wiknamian economy? Explain whether Wiknam becomes and exporter if the world price is above the domestic equilibrium price and becomes an importer when world price is below. Include all the relevant information in your