Question

Question 3 Table 1 illustrates the demand and supply schedules for microwave sets made in AlamDunia, a "small" nation that is unable to affect world prices. Sketch AlamDunia's demand and supply schedules of microwave sets (5 points) Table 1 Price per Qaity Quantity Microwave Demanded Supplied DD100 DD200 DD300 DD400 DD500 DD DanaDunia 900 700 500 300 100 0 200 400 600 800 Suppose that DanaDunia (DD) is AlamDunia's currency and suppose that AlamDunia imports microwave sets at a price of DD150 each. Under free trade, how many microwave sets does AlamDunia produce, consume, and import? Determine AlamDunia's consumer surplus and producer surplus a. (10 points) b. Assume that AlamDunia imposes a quota that limits imports to 300 microwave sets. Determine the quota-induced price increase, consumption and production effects, revenue effect, and the quota's redistributive effects on consumer surplus and producer surplus. (10 points)

Answer 1

a) Suppose that country �AD� imports microwave sets at DD 150 each [DD is the currency] The following diagram shows the consumption production & imports of country �AD� at the price of DD 150: - \r\n Country �AD� produces 100 units at the price of DD 150 It consumes 800 units at this price Therefore, it imports 700 units [800 - 100]. The produces surplus (given by the triangle abc) is: - P S = 1/2 times B times H = 1/2 times (150 - 100) times (100 - 0) = 1/2 times 50 times 100 = 2500 The consumer surplus (given by ade) is: - C S = 1/2 times 3 times 4 = 1/2 times (800 - 0) time (500 - 150) = 1/2 times 800 times 400 = 160,000 For reference: - Q^d function rightdoublearrow Q^d = 110 - 2p Q^s function rightdoublearrow Q^s = 2p - 200 \r\n suppose country �AD� imposes an Import Quota to 300 microwaves sets