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Chapter 2: Q. 6 (page 77)

A tariff is a tax on imported goods. Suppose the U.S. government cuts the tariff on imported flat screen

televisions. Using the four-step analysis, how do you think the tariff reduction will affect the equilibrium price and

quantity of flat screen TVs?

Short Answer

Expert verified

PRICE DECREASES QUANTITY DEMANDED INCREASES, DEMAND CURVE SHIFTS TO THE RIGHT. THE EQUILIBRIUM SHIFTS TO THE RIGHT.

Step by step solution

01

Q6

On reduction of tariff the price of the good will fall, which will lead to increase in quantity demanded. This will lead to the right ward shift in demand curve. the new demand curve would intersect the supply curve at a new point, giving a new equilibrium. the new equilibrium is to the right of the previous equilibrium

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Most popular questions from this chapter

Much of the demand for U.S. agricultural output has come from other countries. In 1998, the total demand for wheat was Q = 3244 - 283P. Of this, total domestic demand was QD = 1700 - 107P, and domestic supply was QS = 1944 + 207P. Suppose the export demand for wheat falls by 40 percent.

  1. U.S. farmers are concerned about this drop in export demand. What happens to the free-market price of wheat in the United States? Do farmers have much reason to worry?

  2. Now suppose the U.S. government wants to buy enough wheat to raise the price to $3.50 per bushel. With the drop in export demand, how much wheat would the government have to buy? How much would this cost the government?

Consider a competitive market for which the quantities demanded and supplied (per year) at various prices are given as follows:

PRICE

(DOLLARS)

DEMAND

(MILLIONS)

SUPPLY

(MILLIONS)

602214
802016
1001818
1201620

a. Calculate the price elasticity of demand when the price is \(80 and when the price is \)100.

b. Calculate the price elasticity of supply when the price is \(80 and when the price is \)100.

c. What are the equilibrium price and quantity?

d. Suppose the government sets a price ceiling of $80. Will there be a shortage, and if so, how large will it be?

Many changes are affecting the market for oil. Predict how each of the following events will affect the equilibrium

price and quantity in the market for oil. In each case, state how the event will affect the supply and demand diagram.

Create a sketch of the diagram if necessary.

a. Cars are becoming more fuel efficient, and therefore get more miles to the gallon.

b. The winter is exceptionally cold.

c. A major discovery of new oil is made off the coast of Norway.

d. The economies of some major oil-using nations, like Japan, slow down.

e. A war in the Middle East disrupts oil-pumping schedules.

f. Landlords install additional insulation in buildings.

g. The price of solar energy falls dramatically.

h. Chemical companies invent a new, popular kind of plastic made from oil.

Does a price ceiling change the equilibrium price?

In Example 2.8 we examined the effect of a 20-percent decline in copper demand on the price of copper, using the linear supply and demand curves developed in Section 2.6. Suppose the long-run price elasticity of copper demand were -0.75 instead of -0.5.

  1. Assuming, as before, that the equilibrium price and quantity are P_ = $3 per pound and Q_ = 18 million metric tons per year, derive the linear demand curve consistent with the smaller elasticity.

  2. Using this demand curve, recalculate the effect of a 55-percent decline in copper demand on the price of copper.
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