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The Demand for DVD Players in a Country Is Given

Question 108

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The demand for DVD players in a country is given by: D = 300 - 0.2 P, where P is the price of a DVD player. Supply by domestic producers is given by: S = 100 + 0.8P. The world price of a DVD player equals 100.
A) If this economy were closed to trade, find what the equilibrium domestic price and production of DVD players would be. If the country were then opened to free trade, what would domestic production and imports of DVD players be?
B) Assume the supply and demand conditions remain as in A). If a tariff of 50 per unit is placed on DVD player imports, what equilibrium price and quantity would result? How many units of total sales of DVD players would be supplied by domestic producers?
C) Assume the supply and demand conditions remain as in A). If a tariff of 50 per unit is placed on DVD player imports, how much revenue will the tariff generate for the government?
D) If rather than imposing a tariff of 50 per unit the government offered domestic producers a per unit subsidy, what size subsidy would be required to get domestic production of 220 ( the same as with the tariff)? What equilibrium market price and total sales of DVD players would result?

Correct Answer:

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A) The no-trade equilibrium is Q = 260, ...

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