Question

7. ACME water bottles. The US demand curve for ACME water bottles, which are imported from China, is given by q = 100 − p. The supply curve, in turn is given byq = (p − 20)/3.

(a) Determine the equilibrium values of p and q.

(b) Suppose that an import tariff of $20 per unit is imposed on Chinese importers (assume the tariff is paid by importers). Determine the new equilibrium values of p and q.

Answer 1

a) given demand curve q1 = 100 − p1 -----1

and supply curve q1 = (p1 − 20)/3 ------2

equating 1 & 2

100-p1 = (p1-20)/3

300-3p1=p1-20

300+20=4p1

320=4p1

p1=80

substituing p1 in eq 1

q1=100-80

q1=20

b)Now an import tariff of $20 per unit is imposed on Chinese importers

the demand and supply curve after imposing tariff are :

p2=100-q2 --------3

p2=3q2+20+20=3q2+40----------4

equating 3 & 4 we get

3q2​​​​​​​+40=100-q2

100-40=3q2​​​​​​​+q2

60=4q2

q2=15

now substitute q2 in eq 3

p2=100-15

p2=85

A tariff is a tax imposed by a government on goods and services imported from other countries that serves to increase the price and make imports less desirable, or at least less competitive, versus domestic goods and services. So US wanted to decrease the demand for the imported bottles and hence they increased tariff which lead to increase in price.

p1=80  q1=20

p2=85 q2=15