The domestic demand for DVD players is given by Q? = 100 − ? and the...

The domestic demand for DVD players is given by Q? = 100 − ? and the domestic supply is given by Q? = ?. DVD players can currently be freely imported at the world price of $20. The government is planning to impose a tariff of $10 per unit on imported DVD players. With the tariff, how many units would be imported? How much would domestic producer surplus change if the government introduces a $10 import duty per DVD player? How much revenue would the domestic government collect from the imports of DVD players

Expert Solution

With free trade and price of $20,

Qd = 100 - 20 = 80

Qs = 20

Imports = Qd - Qs = 80 - 20 = 60

With tariff, price will rise by $10 to $(20 + 10) = $30. At this price,

Qd = 100 - 30 = 70

Qs = 30

(i) Imports = 70 - 30 = 40

(ii) producer surplus (PS) = Area between supply curve and market price

PS before tariff = (1/2) x $20 x 20 = $200

PS after tariff = (1/2) x $30 x 30 = $450

Increase in PS = $450 - $200 = $250

(iii) Tariff revenue = Unit tariff x Imports after tariff = $10 x 40 = $400

Rahul Sunny answered 2 years ago

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