Answered: Assume the United States is an importer…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter9: Application: International Trade

Section: Chapter Questions

Problem 2PA

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Question

Assume the United States is an importer of televisions
and there are no trade restrictions. U.S. consumers
buy 1 million televisions per year, of which 400,000 are
produced domestically and 600,000 are imported.
a. Suppose that a technological advance among
Japanese television manufacturers causes the
world price of televisions to fall by $100. Draw a
graph to show how this change affects the welfare
of U.S. consumers and U.S. producers and how it
affects total surplus in the United States.b. After the fall in price, consumers buy 1.2 million
televisions, of which 200,000 are produced domestically
and 1 million are imported. Calculate the
change in consumer surplus, producer surplus,
and total surplus from the price reduction.
c. If the government responded by putting a
$100 tariff on imported televisions, what would
this do? Calculate the revenue that would be
raised and the deadweight loss. Would it be a
good policy from the standpoint of U.S. welfare?
Who might support the policy?
d. Suppose that the fall in price is attributable not
to technological advance but to a $100 per television
subsidy from the Japanese government to
Japanese industry. How would this affect your
analysis?

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