1. Suppose that the domestic demand and supply for shoes in a small open economy are given by P = 80 – 2Q P = 8 + Q where P denotes price and Q denotes quantity. a. What are the autarky price of shoes and quantity produced? b. Calculate consumer, producer and total surpluses. c. What are the levels of domestic production, consumption, and imports if the world price is $10? d. Repeat b for part c. e. How would your answers in part (b) change if this country were to impose a tariff of $3? 2. Consider the market for books. Domestic demand and supply for books in a small country is given by the equations P= -3Q + 200 P=50+0 Where the price is in UAE dirhams (AED) and the quantity is in thousands of books. Assume that this economy is closed to world trade. a. Calculate the equilibrium quantity, price, consumer surplus, and producer surplus in the market for books. b. Draw the demand and supply for the market of books and show the equilibrium price, quantity, consumer surplus and producer surplus. Now assume that this economy opens to world trade. The world price of books is AED10. c. How many units of books will this economy import or export? d. Calculate the consumer surplus, producer surplus, and total surplus in the market for books if this economy opens to trade. Show them in a new graph.
3. The domestic demand curve for portable radios is given by Q=5000-100P, and the domestic supply curve for radios is given by Q=150P. a. Find the equilibrium price and quantity. b. Calculate the consumer surplus, producer surplus and total surplus. Show graphically. Now suppose radios can be obtained in the world market at a price of RM10 per radio, c. Draw a graph illustrating the domestic equilibrium and the free trade equilibrium. If domestic radio producers have successfully lobbied the government to impose a tariff of RM5 per radio, d. Calculate the consumer surplus, producer surplus and total surplus with the tariff. e. How much would the government collect in tariff revenues? What is the deadweight loss from the tariff?
