The domestic market for calculators is perfectly competitive and is in equilibrium. Domestic demand is given by $Q ^ { d } = 100 - P$ and domestic supply is given by $Q ^ { s } = 4 P$. The world price for calculators is $\$ 10$. Now, a tariff of $\$ 10$ is imposed on all imports. How many units of calculators will be imported now?
A) 0
B) 10
C) 30
D) 50

Question

Quizplus · Accepted Answer

With the imposition of a tariff of $10, the effective world price of calculators in the domestic market becomes $20 ($10 tariff + $10 world price). At this price, the domestic demand is:

$Q_d = 100 - $20 = 80$

The domestic supply is:

$Q_s = 4($20) = 80$

Therefore, the domestic market is self-sufficient and there is no need to import any calculators. Hence, the correct answer is A) 0. With the imposition of a tariff of $10 on all imports, the new price of imported calculators will be $20 ($10 tariff + $10 world price). As the domestic market price is $100 - Q, the new equilibrium price will be $20. At this price, domestic firms will supply 4($20) = $80 worth of calculators. The quantity demanded at this price will be 100 - $20 = 80. Therefore, there will be no imports (Qd - Qs = 80 - 80 = 0).

The Domestic Market for Calculators Is Perfectly Competitive and Is Qd=100−PQ ^ { d } = 100 - PQd=100−P

The Domestic Market for Calculators Is Perfectly Competitive and Is $Q ^ { d } = 100 - P$