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    ronnafitriah.2022
    The document describes the market demand and supply functions for imported cars. It states that the legislature is considering a $2,000 per unit tariff on imported cars to support domestic manufacturers. It asks to calculate the loss in producer surplus if the tariff is implemented, and the number of imported units. It also asks to calculate producer surplus if importers voluntarily limit imports to the same level instead of a tariff, and whether importers would prefer a tariff or voluntary quota.

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    Untitled Document

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    ronnafitriah.2022
    9 views2 pages
    The document describes the market demand and supply functions for imported cars. It states that the legislature is considering a $2,000 per unit tariff on imported cars to support domestic manufacturers. It asks to calculate the loss in producer surplus if the tariff is implemented, and the number of imported units. It also asks to calculate producer surplus if importers voluntarily limit imports to the same level instead of a tariff, and whether importers would prefer a tariff or voluntary quota.

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    The document describes the market demand and supply functions for imported cars. It states that the legislature is considering a $2,000 per unit tariff on imported cars to support domestic manufacturers. It asks to calculate the loss in producer surplus if the tariff is implemented, and the number of imported units. It also asks to calculate producer surplus if importers voluntarily limit imports to the same level instead of a tariff, and whether importers would prefer a tariff or voluntary quota.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    9 views2 pages

    Untitled Document

    Uploaded by

    ronnafitriah.2022
    The document describes the market demand and supply functions for imported cars. It states that the legislature is considering a $2,000 per unit tariff on imported cars to support domestic manufacturers. It asks to calculate the loss in producer surplus if the tariff is implemented, and the number of imported units. It also asks to calculate producer surplus if importers voluntarily limit imports to the same level instead of a tariff, and whether importers would prefer a tariff or voluntary quota.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 2

    ​ The market demand and supply functions for imported cars are: QD =

    800,000 - 5P and QS = 14 P + 225,000. The legislature is considering a tariff


    (a tax on imported goods) equal to $2,000 per unit to aid domestic car
    manufacturers. If the tariff is implemented, calculate the loss in producer
    surplus. How many units of cars are imported? Suppose that instead of a
    tariff, importers agree to voluntarily restrict their imports to this level. If
    they do and no tariff is implemented, calculate producer surplus in this
    scenario. Do you expect importers will be more in favor of a tariff or a
    voluntary quota?
    ​
    ​ Here’s the best way to solve it.
    ​ Expert-verified
    ​ Step 1: Solving for the equilibrium price and quantity
    ​ QD = 800000 – 5P
    ​ QS = 14P + 225000
    ​ At equilibrium, QD = QS
    ​ Therefore,
    ​ 800000 – 5P = 14P + 225000
    ​ 19P = 575000
    ​ P = 575000 / 19 = 30263.16
    ​ To find the equilibrium, put P = 30263.16 in either Demand function or
    Supply function
    ​ QD = 800000 – 5 (30263.16) = 648684.21 = 648684 (Rounding off)
    ​ QS = 14(30263.16) + 225000 = 648684.24 = 648684 (Rounding off)
    ​ Step 2: Solving for Producer Surplus
    ​ Producer surplus is the total amount by which the producers came out
    ahead. It’s equal to the area between equilibrium and supply.
    ​ Both areas can be found using a definite integral. In the graph if we plot
    demand function and supply function and mark the equilibrium price,
    ​ The left edge of Producer Surplus is the point where the supply function
    crosses the x-axis, and so to find this point, we set the supply function
    equal to zero and solve:
    ​ QS = 14P + 225000 = 0
    ○ P = - 16071.42 (Price cannot be negative, therefore it seems there is
    some problem with the supply function given, please check the
    question once and then follow these steps)
    ​ The right edge is easy: it’s the equilibrium line, and the x-coordinate of that
    line is 30263.16. So the bounds of our integral will be $- 16071.42 and
    $30263.16. The upper function this time is our supply equation, and the
    lower function is zero. This leads to the integral:
    ​ 30263.16

    ​ This leads to the integral : ʃ- 16071.42 (14P + 225000) – 0dp


    ​ = 14 P2/2 + 225000P + C 30263.16
    ​ - 16071.42

    ​ = [14 (30263.16) 2/2 + 225000(30263.16)] - [14 (- 16071.42 ) 2/2 + 225000((-


    16071.42 )]
    ​ Note: Check the supply function for accuracy before solving
    ​ For increase in tariff, supply function will become: 14(P+ 2000) + 225000
    and steps should be repeated. The difference between the new producer
    surplus and old producer surplus may be calculated after that.

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