Question

Question 1: In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P...

Question 1: In a perfectly competitive market, the demand curve is given as: Q=100-5P, the supply curve is given as Q=3P-12.

1. Compute the total social surplus of this market.

2. If the government impose a tax on the producers, and the tax rate is \$2 per unit

produced. What is the deadweight loss?

3. If the government impose a tax on the consumers, and the tax rate is \$2 per unit

purchased, graphically show the change in the market equilibrium and the deadweight

loss.

4. If the government provide a subsidy of \$4 per unit to the producers, what is the

Question 2: In a small country, the demand curve is given as: Q=100-5P, supply curve: Q=3P-12, and the world price is \$10.

1. What is the social surplus under free trade?

2. If the government impose a \$2/unit tariff on the good, what is the deadweight loss?

3. Show the change in equilibrium and deadweight loss on a graph.

Country A: demand: Q=400-P, supply: Q=P-20 Country B: demand: Q=300-P, supply: Q=2P-30

1. Which country is importing? What is the global price under free trade?

2. Compute the social surplus of each country.

3. If the importing country impose a \$20 tariff, what is the change in social surplus in

each country?

Total surplus= 0.5*(20-4)*14= \$42

Deadweight loss under tax= 0.5*(2)*(30-26.25)= \$3.75

Equilibrium shifts from E1 to E2.

Note-According to the HOMEWORKLIB RULES first question is answered.

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