Question

Question 2

Consider now the case where the abovementioned market for Phone X opens up to imports, and where the world price (? ) is equal to $250 per phone.

(a) In the space below, sketch again the graph that shows the domestic demand and supply for Phone X (same as above, including the domestic equilibrium price and quantity), but illustrate also the world price of Phone X. You will use this graph to answer the questions that follow it.

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(b) Calculate consumer surplus at the domestic price (i.e., before trade).

(c) How much of the good would domestic suppliers be willing to supply at the world price?

(d) How much of the good would domestic consumers demand at the world price?

(e) Calculate consumer surplus if the product were allowed to be traded at the world price.Show all your calculations clearly.

(f) By how much would consumer surplus increase if the product were allowed to be traded at the world price? Show all your calculations clearly and show this increase on the graph (shade it lightly using a pencil or pen).

(g) Suppose the government imposes a tariff of $100 added to the world price. Calculate the loss of consumer surplus that would result. Show all your calculations clearly.

Answer 1