Question

Following table gives demand and supply information on reading glasses. There is graph paper on the page 4 for drawing the figure. Answer questions 1-6 using the information on table Quantity Supplied (millions of pairs) (millions of pairs) Quantity Demanded 100 80 60 40 Price (S per pair)Q 40 60 80 100 120 4 Table 1 Suppose US decides to open the reading glass market for free international trade. In the world market a pair of reading glasses is sold at $ 1.

Answer 1

1. i) From the table it can be seen in that when world price = $1/pair, that is at a price of $1 /pair, domestic Consumption or quantity demanded domestically is 100 millions of pairs.

ii) At the price of $1/pair, domestic production or quantity supplied domestically is 20 million of pairs.

III) Quantity imported = quantity demanded - quantity supplied = (100 - 20) = 80 million of pairs.

2. Now if US government imposes a tariff of $1/pair, the domestic price would be (world price + tariff) = $(1+1) = $2/pair.

i) at that price domestic consumption is 80 millions of pairs.

ii) domestic production or quantity supplied domestically is 40 millions of pairs.

III) quantity imported = (80 - 40) = 40 millions of pairs.

iv) tariff revenue = (amount of tariff * after tariff quantity imported) = $(1*40 million) = $40 million

Answer to question part (3) - (5)

i) From the table it can be seen in that when world price = $1/pair, that is at a price of $1/pair, domestic Consumption or quantity demanded domestically is 100 millions of pairs. ii) At the price of $1/pair, domestic production or quantity supplied domestically is 20 million of pairs. III) Quantity imported = quantity demanded - quantity supplied = (100 - 20) = 80 million of pairs. Now if US government imposes a tariff of $1/pair, the domestic price would be (world price + tariff) = $(1 + 1) = $2/pair. i) at that price domestic consumption is 80 millions of pairs. ii) domestic production or quantity supplied domestically is 40 millions of pairs. III) quantity imported = (80 - 40) = 40 millions of pairs. iv) tariff revenue = (amount of tariff * after tariff quantity imported) = $(1*40 million) = $40 million Answer to question part (3) - (5) Before tariff, at world price, Consumer surplus