Sample Test 2

Professor Choi, E355 E-2 Name: Last_____________, First _________________

No answers to Sample test #2 are provided except for the tariff problem. For other questions, just read your notes.

(a) Assume that there are two countries, US and Japan. In autarky, the US would produce 7.5__ million cars per year.
Domestic price of automobile in autarky would be \$7500_____.
Consumer surplus would be \$(7500 x 7.5)/2__ million.
Producer surplus would be \$(7500 x 7.5)/2 __ million.

(b) Suppose there are no trade barriers and that the world price of the automobile is p* = \$6,000.
The US would import 3 _ million cars from Japan.
Consumer surplus would be \$(9000 x 9)/2__ million.
Producer surplus would be \$(6000 x 6)/2 __ million.

(c) Suppose President Lincoln imposes a specific tariff of \$500 on imported cars. Due to the tariff,
domestic price rises to \$6500__, consumer surplus is \$(8500 x 8.5)/2_ million, producer surplus is \$(6500 x 6.5)/2_ million, total surplus is \$ 42250/2 + 72250/2 + (government revenue: 500 x 2)_ million, and deadweight loss from the tariff is \$(500 x 1)/2 __ million.

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