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Title: The market for all-leather men's shoes is served by both domestic (U.S.) and foreign (F) producers. ... Post by: Satsume on Oct 24, 2017 The market for all-leather men's shoes is served by both domestic (U.S.) and foreign (F) producers. The domestic producers have been complaining that foreign producers are dumping shoes onto the U.S. market. As a result, Congress is very close to enacting a policy that would completely prohibit sales by foreign manufacturers of leather shoes in the U.S. market. The demand curve and relevant supply curves for the leather shoe market are as follows:
QD = 50,000 - 500P QUS = 6000 + 150P QF = 2000 + 50P, where Q = thousands of pairs of shoes per year, and P = price per pair. a. Currently there are no restrictions covering all-leather men's shoes. What are the current equilibrium values? b. Calculate the price and quantity that would prevail if the proposed policy is enacted. c. Sketch a diagram that analyzes the economic welfare implications of the proposed policy. Title: Re: The market for all-leather men's shoes is served by both domestic (U.S.) and foreign (F) ... Post by: LBCea on Oct 24, 2017 a.
Without restrictions, the supply curve is the sum of U.S. and foreign supply curves: QS = QUS + QF QS = 8000 + 200P Equate QS and QD: 50,000 - 500P = 8000 + 200P 42000 = 700P P = 60 QD = 50,000 - 500(60) Q = 20,000 b. Under the proposed policy, QUS is relevant supply curve. Equate QD and QUS: 50,000 - 500P = 6000 +150P 44,000 = 650P P = 67.69 Price rises to 67.69. QD = 50,000 - 500(67.69) QD = 16.155; Quantity falls to 16,155. c. Sketch diagram using demand and U.S. supply curve. Loss in consumer surplus is A + B + C. Gain in producer surplus is A. It is clear that there is a deadweight loss, even if we assign no value to the producer surplus of foreign manufacturers. |