Explore BrainMass

Consumers' surplus

Please see the attached file.

Suppose that in the domestic market for comĀ¬puter chips the demand is pd = 110 - Qd, where Qd is the number of units of chips demanded domestically when the price is pd. The domestic supply is ps = 10 + QS, where QS is the number of units of chips supplied domestically when domestic suppliers receive a price ps. Foreign suppliers would be willing to supply any number of chips at a price of $30. The government is contemplating three possible policies:
Policy I: The government decides to ban imports of chips.
Policy II: Foreign suppliers are allowed to import chips (with no tariff).
Policy III: The government allows imports, but imposes a tariff of $10 per unit.
Fill in the table in Figure 10.20, giving numerical answers.

(see attached file for chart)

How many units of chips would be consumed domestically?
How many units of chips would be produced domestically?
What is the size of domestic producer surplus?
What is the size of consumer surplus?
What is the size of government receipts?

FIGURE 10.20 Government Policies for Computer Chip Imports

Also: repeat your analysis for Policy IV, in which the domestic government does not impose a tariff on foreign suppliers, but it imposes a quota limiting imports to no more than 20 units of chips.

For each case (policies I, II, III, and IV), show your work and illustrate your analysis with a diagram.


Solution Summary

Consumers' surplus is examined.