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Suppose the domestic market demand function in a certain market where Q is measured in thousands...

Suppose the domestic market demand function in a certain market where Q is measured in thousands of units is Qd = 20 - 2.5P, and the domestic market supply function is Qs = 2.5P - 7.5. Suppose further that the world price for the good in question is $3.40 per unit.

a) Under conditions of free trade, how much consumer surplus will there be?

b) Under conditions of free trade, how much producer surplus will there be?

c) How much deadweight loss would be caused by a $1.20 tariff on imported units of this good?

d) If the government places a $1.20 tariff on imported units of this good, by how much is producer surplus increased?

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Expert Solution

Rahul Sunny answered 1 year ago
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