Please complete all parts to #2 in bold
Exercise A Assume that the demand for commodity is… Bookmark
Exercise A Assume that the demand for commodity is represented by
the equation p=18-2QD and supply by the equation P=2+2Qs, where Qd
and Qs are quantity demanded and quantity supplied, respectively
and P is price. Using the equilibrium condition Qs=Qd, solve the
equations to determine the equilibrium price. Now determine
equilibrium quantity. Graph the two equations to substantiate your
1. Compute and show on your graph consumer surplus and producer
2. Calculate the loss of consumer surplus and the new
producer surplus if the government decides to levy a 15% tariff on
the imported goods.
What is meant by protective effect?
3. Now suppose the authorities impose a quota of 15 units to be
imported. Using the same equations show the impact of this measure
on the market by computing the deadweight loss associated with this
policy, the new producer and consumer surplus and the gain by
foreign suppliers due to this quota. Illustrate your answer with a
graph. Is there a revenue effect in this case? Justify your answer.
What is meant by quota rent?
4. Instead of a quota, the government decides to provide a
subsidy of $2 to the import competing industries. Compute the
increase in producer surplus and the DWL due to this intervention
and illustrate graphically your answer.