EC 308 Intermediate Microeconomics

Instructor: Kent O. Zirlott

 Consider the market for DVD players.  Let the market demand and supply curves be given as follows:

Demand:  P = 90 - 2Q

Supply:  P = 3Q

1.  
   1. Under the assumption of a competitive market, what are the equilibrium price and quantity?
   2. Now, assume the government imposes a price ceiling of $30. How many DVD players are demanded and supplied at this price? Was a shortage created by this price ceiling and, if so, how much is it?
   3. Calculate the price (P_EX) that would eliminate the shortage from the market. 
   4. Calculate the consumer surplus, the producer surplus, and the deadweight loss.
   5. Create a graph of this market.  Note clearly on the graph the equilibrium quantity and price, the quantity demanded and the quantity supplied under the price ceiling, the shortage, the price that would eliminate the shortage from the market (P_EX), the producer and consumer surpluses, and the deadweight loss.

 Assume the market demand curve for U.S. automobiles is P = 15000-50Q and the supply curve is P = 50Q, where P is the price of automobiles and Q is the quantity of automobiles.

1.  
   1. What is the equilibrium price and quantity for the U.S. automobile market if there was no trade?
   2. Now if the U.S. imports automobiles at a price of $5,000, how many automobiles will be produced domestically, how many will be consumed domestically, and how many will be imported?
   3. Now suppose the U.S. government places a $1000 tariff on each imported automobile, how many will now be consumed domestically, how many will be produced domestically, and how many will be imported?
   4. Calculate the amount of the tax revenue to the U.S. government.
   5. Calculate the amount of the deadweight loss.
   6. Create a graph of this market.  Note clearly on the graph the equilibrium quantity and price if there was no trade, the quantity produced and consumed domestically and the amount imported under the world price, the quantity produced and consumed domestically and the amount imported under the tariff, the tax revenue generated from the tariff, and the deadweight loss created by the tariff. 

Please label your graphs thoroughly otherwise points will be deducted and show all your work including calculations.  Also, the assignment is due in class on Monday and late homework will not be accepted.