TARIFFS (Chapter 6)-Two exercises 7 & 13).

Please do the following additional exercises from the Text.

P 138: Ex. 7.

Given the following information, calculate the cost to consumers (CS), the benefit to producers (PS), the change in government revenue ((G),, and the deadweight costs of a proposed 20 percent tariff on personal computers:

Prices of computers (free trade P_FT):$2,000

Domestic production (free trade Q₁)100,000

Domestic production (after tariff Q₃)120,000

Domestic consumption (free trade Q₂)150,000

Domestic consumption (after tariff Q4)140,000

Graph your answer

P 138: Ex 13.

Suppose the domestic demand and supply for shoes in a small open economy are given by:

P = 100 - 2Q (inverse demand)

P = 4 + Q(inverse supply)

where P represents the domestic price and Q denaotes the quanitity.

a.What are the autarky price of shoes and the autarky quantity produced?

Hint: domestic demand = domestic supply (without trade)

b.What are the level of domestic production, consumption, and total imports if the world price is $10. Hint: Plug P=10 in supply and demand equation

c.How do your answers in part (b) change if the country were to impose a tariff of $3? Hint: Plug P after tariff = 10 + 3 = $13 into the supply equation and solve for Q3 )domestic production under tariff). Do the same for the demand equation and solve for Q4 (consumption under tariff).