c) Under free trade conditions suppose Australia imports TV sets at a price of $100 each. Determine the free trade equilibrium, and illustrate graphically. How many TV sets will be produced, consumed and imported.

Finance Basics

Assume the nation of Australia is “small” and thus unable to influence world price. Its demand and supply schedules for TV sets are shown in the following table.

a) Using graph paper, plot the demand and supply schedules on the same graph.

b) Determine Australia’s market equilibrium price and quantity for TV sets. Calculate the value of consumer and producer surplus.

c) Under free trade conditions suppose Australia imports TV sets at a price of $100 each. Determine the free trade equilibrium, and illustrate graphically. How many TV sets will be produced, consumed and imported.

d) Calculate the dollar value of Australian consumer and producer surplus.

e) To protect its producers from foreign competition, suppose the Australian government levies a specific tariff of $100 on imported TV sets. Determine and show graphically the effects of the tariff on the price of TV sets in Australia, the quantity of TV sets supplied by Australian producers, the quantity of TV sets demanded by Australian consumers and the volume of trade.

f) Calculate the reduction in Australian consumer surplus due to the tariff induced increase in the price of TV sets.

g) Calculate the value of the tariff’s consumption, protective, redistributive and revenue effects.

h) What is the amount of the deadweight welfare loss imposed on the American economy by the tariff.

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