Suppose that in the domestic market for computer chips the demand is Pd = 110 Qd

Question

Suppose that in the domestic market for computer chips the demand
is Pd = 110 Qd . The domestic supply is Ps = 10 + Qs . Foreign suppliers
would be willing to supply any number of chips at a price of 30$. The govt is
contemplating three possible policies:
I) Ban import chips. II) The chips can be imported with no tariffs. III) The govt allows import, but imposes a tariff of 10$ per unit.

Under each of the three policies determine the following:
i) How many units would be consumed domestically,
ii) How many units would be produced domestically,
iii) What is the size of the domestic producer surplus,
iv) What is the size of consumer surplus,
v) what is the size of govt receipts.

As the answer draw a table with 3 columns (policies), 5 rows (questions) and ?ll in the numbers in the boxes.

Explanation / Answer

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