Micro-Economics Help Plzzz?
Sunday, August 23rd, 2009 at
7:14 pm
arsani401 asked:
1. The demand for commodity x is given by D(p) = 45 – 7p and the supply is given by
S(p) = 9 + 2p. Suppose the price of good x in the international market is $3.
(a) Calculate the total imports of commodity x?
(b) Calculate the consumer surplus after trade?
(c) Calculate the producer surplus after trade?
(d) How does your answers change in parts (a), (b) and (c) if the government imposes
a tariff of $0.6 per quantity of x imported?
2. What is the effect of the depreciation of the domestic currency on (a) export prices (b)
import prices ?
1. The demand for commodity x is given by D(p) = 45 – 7p and the supply is given by
S(p) = 9 + 2p. Suppose the price of good x in the international market is $3.
(a) Calculate the total imports of commodity x?
(b) Calculate the consumer surplus after trade?
(c) Calculate the producer surplus after trade?
(d) How does your answers change in parts (a), (b) and (c) if the government imposes
a tariff of $0.6 per quantity of x imported?
2. What is the effect of the depreciation of the domestic currency on (a) export prices (b)
import prices ?
Tagged with: 7p • Domestic Currency • Micro Economics
Filed under: Commodity Trading
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1
(a)
D=45-7*3 = 45-21=24
S=9+2*3 = 9+6=15
Import = 24-15=9
(b)
D°=0
0=45-7P
P=45/7
CS=(45/7 – 3) * 24/2 = 24*24 / (7*2) = 24*12/7 ≈ 41.14
(c)
P°=0
S°=9
PS= (3*9) + (15-9)*3/2 = 27+9 = 36
(d)
World price = 3+0.6 = 3.6
D=45-7*3.6 = 45-25.2 = 19.8
S=9+2*3.6 = 16.2
Import = 19.8-16.2 = 3.6
CS = (45/7 – 3.6) * 19.8/2 ≈ 28
PS = (3*9) + (16.2-9)*3.6/2 = 39.96
ΔCS = 28-41.14 = -13.14
ΔPS = 39.96 – 36 = +3.96
ΔGR = 3.6*0.6 = +2.16
DWL = 3.96+2.16-13.14 = -7.02
2
Depreciation temporary will decrease domestic purchasing power, thus world price will go up for the size of depreciation.
For instance if domestic currency were depreciated for 20% – it will increase world price to: $3/(1-80%) = 3/0.8 = 3.75
But at the same time many different adjustments will happen too (regarding both, domestic producers and consumers, plus there usually are some previously purchased stocks in product distribution chains).