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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

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?

In 2010, Americans smoked 315 billion cigarettes, or 15.75 billion packs of cigarettes. The average retail price (including taxes) was about \(5.00 per pack. Statistical studies have shown that the price elasticity of demand is -0.4, and the price elasticity of supply is 0.5.

  1. Using this information, derive linear demand and supply curves for the cigarette market.

  2. In 1998, Americans smoked 23.5 billion packs of cigarettes, and the retail price was about \)2.00 per pack. The decline in cigarette consumption from 1998 to 2010 was due in part to greater public awareness of the health hazards from smoking, but was also due in part to the increase in price. Suppose that the entire decline was due to the increase in price. What could you deduce from that about the price elasticity of demand?

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?

Suppose the demand curve for a product is given byQ= 300 - 2P+ 4I, whereIis average income measured in thousands of dollars. The supply curve isQ= 3P- 50.

a. IfI= 25, find the market-clearing price and quantity for the product.

b. IfI= 50, find the market-clearing price and quantity for the product.

c. Draw a graph to illustrate your answers.

Does a price ceiling change the equilibrium price?
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