Question

Q: The domestic demand for salmon in the U.S. has an inverse demand curve of p = 150 -3Q. The domestic supply of salmon has an inverse supply curve of p = .50Q. The price is $ per pound of salmon and Q is in millions of pounds of salmon. Assume that the market for salmon is perfectly competitive in a global marketplace.

a. Provide a graph of the domestic supply and demand for salmon and then calculate and show the domestic supply and demand at a world price of $9 per pound.

b. If the U.S. government puts a tariff of $3 per pound on salmon, calculate and show the effects of this tariff on the market for salmon, calculating a new quantity demanded and supplied.

Answer 1

Demand: P = 150 - 3Q

Supply: P = 0.5Q

a) At equilibrium, demand = supply

150 - 3Q = 0.5Q

Q = 42.86

At this output level, P = 21.43

At a world price of $9, quantity demanded is 47 units while quantity supplied is 4.5 units which result in imports of 47 - 4.5 = 42.5

b) If there is a tariff of $3, price rise to $12. New quantity demanded is 46 units and quantity supplied is 6 units which result in import of 46 - 6 = 40 units.