Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 11

Suppose that the Marshall Islands does not trade with the outside world. It has a competitive domestic market for TV sets. The market supply and demand curves are reflected in this table:
a. Plot the supply and demand curves and determine the domestic equilibrium price and quantity.
b. Suddenly,the islanders discover the virtues of free exchange and begin trading with the outside world. The Marshall Islands is a very small country,and so its trading has no effect on the price established in the world market. It can import as many TVs as it wishes at the world price of $100 per TV. In this situation,how many TVs will be purchased in the Marshall Islands? How many will be produced there? How many will be imported?
c. After protests from domestic producers,the government decides to impose a tariff of $100 per imported TV. Now how many TVs will be purchased in the Marshall Islands? How many will be produced there? How many will be imported?
d. What is the government's revenue from the tariff described in part (c)?
e. Compare the effect of the tariff described in part (c)with a quota that limits imports to 100 TVs per year