Question
Given: Demand; P = 600 - 5 Q & Supply; P = 100 + 5 Q Note that the equilibrium quantity is 50 and the
Given: Demand; P = 600 - 5 Q & Supply; P = 100 + 5 Q
Note that the equilibrium quantity is 50 and the price is 350.
Each of parts a), b) and c) begins from that basic equilibrium.
a) (3 marks) Assume a price floor is imposed at $460. Assume the right to produce is allocated to the lowest cost sellers. Find the consumers surplus, producers surplus, and the deadweight loss caused by the floor.
b) (3 marks) Assume a $300 tax is imposed. Find the price net of tax, the tax dollars collected, and the resulting deadweight loss.
c) (3 marks) Assume open trade is allowed when the world price is $160. Find the resulting volume of imports, and therefore the gain from trade (1 mark for the GFT).
Then assume an import tariff of $80 per unit is imposed. Find the resulting tariff dollars collected and the DWL caused by the tariff.
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