Question

The domestic supply and demand curves for washing machines are as follows:

Supply: P= 2040+3Q Demand: P=4080-7Q

where P is the price in dollars and the Q is the quantity in millions.

The U.S. is a small producer in the world washing machine market.

Where the current price (which will not be affected by anything we do) is $ 2,300.

Congress is considering a tariff of $400.

A. Calculate the domestic market for washing machines' price and quantity equilibrium.

B. Find the domestic quantity demanded and supplied of washing machines that will result if the price imposition of $2,300 is imposed.

Find the domestic quantity demanded and supplied of washing machines that will result if the $400 tariff is imposed.

Compute government revenue from the tariff.

Illustrate graphically

Answer 1

A) we know that to calculate equlibrium price and quantity put Qd = Qs

So Qs = P/3 - 2040/3 and Qd = 4080/7 - P/7

Now put Qd = Qs

So P/3 - 2040/3 = 4080/7 - P/7

So P/3 + P/7 = 4080/7+2040/3

10P / 21 = 26520/21

So P = 2652

Put P = 2652 into P = 2040 + 3Q

2652 = 2040 + 3Q so Q = 204

So equlibrium quantity(Q) = 204 and equlibrium price = 2652.

B. At price(P) = 2300

The Qs = P/3 - 2040/3 = 2300/3 - 2040/3 = 86.6

Qd = 4080/7 - 2300/7 = 222.5

So at price(P) = 2300 the quantity Demanded = 222.5 and quantity supply = 86.6

After tarrif the price is = 2300 + 400(tariff) = $2700

So Qd = 4080/7 - 2700/7 = 197.14

Qs = 2700/3 - 2040/3 = 220

So after tarrif the Qd = 197.14 and Qs = 220

There is zero government revenue by imposing tariff because after Imposing tariff $400 the price(2700) is more than domestic price(2652) due to which there is no import, hence government revenue is zero from import tariff.