Economics Worksheet With Answers - 2011 (Page 3 of 6) in pdf

Economics Worksheet With Answers - 2011 Page 3

3. The graph below shows the case for a tariff imposed by a large country.

a. How much will the home market firms produce and what will be the total demand

for the good if the world price of the product is $30?

Reading across the $30 price and down to the quantity the answer is 20 units.

b. What is the amount imported by the home market under free trade?

Continuing to read across the $30 price, demand is 100, so imports are 100–20=80.

c. What is the net loss in the world market if a tariff of $10 is imposed by the home

country?

Raising the price from $26 to $36 will apply to the triangle in the World market

graph. The area of the triangle is ½(40)(10) = 200.

d. What is the loss of consumer surplus in the home country?

The loss of consumer surplus in the home country is the area in dashed lines

between the $36 and $30 price lines. This is the rectangle that is 6 x 80 = 480 plus

the triangle that is 20 x 6 which is 60 for a total of 540.

e. What is the terms-of-trade gain and what is the deadweight loss?

The terms-of-trade gain is the rectangle bounded by the $26 and $30 price lines and

the 40 and 80 unit quantity lines. The area is 4 x 40, so the terms-of-trade gain is

160. The deadweight loss is the sum of the two triangles between the $26 and $30

price lines and the 20 to 40 and 80 to 100 quantity lines.

The area is 2(1/2)(20)(6) = 120.

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Economics Worksheet With Answers - 2011 Page 3