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Chapter 2: Q. 6 (page 77)

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

Short Answer

Expert verified

PRICE DECREASES QUANTITY DEMANDED INCREASES, DEMAND CURVE SHIFTS TO THE RIGHT. THE EQUILIBRIUM SHIFTS TO THE RIGHT.

Step by step solution

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01

Q6

On reduction of tariff the price of the good will fall, which will lead to increase in quantity demanded. This will lead to the right ward shift in demand curve. the new demand curve would intersect the supply curve at a new point, giving a new equilibrium. the new equilibrium is to the right of the previous equilibrium

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Most popular questions from this chapter

The table below shows the retail price and sales for instant coffee and roasted coffee for two years.

  1. Using these data alone, estimate the short-run price elasticity of demand for roasted coffee. Derive a linear demand curve for roasted coffee.

  2. Now estimate the short-run price elasticity of demand for instant coffee. Derive a linear demand curve for instant coffee.

  3. Which coffee has the higher short-run price elasticity of demand? Why do you think this is the case?

Refer to Example 2.5 (page 59) on the market for wheat. In 1998, the total demand for U.S. wheat was Q = 3244 - 283P and the domestic supply was QS = 1944 + 207P. At the end of 1998, both Brazil and Indonesia opened their wheat markets to U.Sfarmers. Suppose that these new markets add 200 million bushels to U.S. wheat demand. What will be the free-market price of wheat and what quantity will be produced and sold by U.S. farmers?

The rent control agency of New York City has found that aggregate demand is QD = 160 - 8P. Quantity is measured in tens of thousands of apartments. Price, the average monthly rental rate, is measured in hundreds of dollars. The agency also noted that the increase in Q at lower P results from more three-person families coming into the city from Long Island and demanding apartments. The city’s board of realtors acknowledges that this is a good demand estimate and has shown that supply is QS = 70 + 7P.

  1. If both the agency and the board are right about demand and supply, what is the free-market price? What is the change in city population if the agency sets a maximum average monthly rent of \(300 and all those who cannot find an apartment leave the city?

  2. Suppose the agency bows to the wishes of the board and sets a rental of \)900 per month on all apartments to allow landlords a “fair” rate of return. If 50 percent of any long-run increases in apartment offerings comes from new construction, how many apartments are constructed?

A vegetable fiber is traded in a competitive world market, and the world price is \(9 per pound. Unlimited quantities are available for import into the United States at this price. The U.S. domestic supply and demand for various price levels are shown as follows:

PRICEU.S. SUPPLY (MILLIONS)U.S. (DEMAND) (MILLIONS)
3234
6428
9622
12816
151010
18124

  1. What is the equation for demand? What is the equation for supply?

  2. At a price of \)9, what is the price elasticity of demand? What is it at a price of \(12?

  3. What is the price elasticity of supply at \)9? At $12?

  4. In a free market, what will be the U.S. price and level of fiber imports?

Example 2.9 (page 76) analyzes the world oil market. Using the data given in that example:

a. Show that the short-run demand and competitive supply curves are indeed given by

D = 36.75 - 0.035P

SC= 21.85 + 0.023P

b. Show that the long-run demand and competitive supply curves are indeed given by

D = 45.5 - 0.210P

SC= 16.1 + 0.138P

c. In Example 2.9 we examined the impact on price of a disruption of oil from Saudi Arabia. Suppose that instead of a decline in supply, OPEC production increases by 2 billion barrels per year (bb/yr) because the Saudis open large new oil fields. Calculate the effect of this increase in production on the price of oil in both the short run and the long run.
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