Question

The demand for sunglasses is given by D(p) = 100 − 2 p and the supply curve is given by S(p) =3p

(a) Compute the equilibrium price and equilibrium quantity of sunglasses.

(b) Sketch both the demand and supply curves on the same graph (be sure to label your axes correctly).

(c) Determine the value of consumer surplus and producer surplus at the equilibrium values. Suppose all sunglasses are imported from China. Suppose also that the government imposes an import tariff of $10 per unit. Show working

(d) Determine the new equilibrium values of price and quality. show working

(e) Determine the tariff’s impact on consumer surplus, producer surplus, and total surplus.

Answer 1

D. The new equlibrium price is 30 and equilibrium quantity is 40

E. After tariff the consumer surplus reduces, the producer surplus reduces and total surplus also reduces.