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c10competitive markets applications.qxd 7/15/10 4:58 PM Page 436

436 CHAPTER 10 COMPETITIVE MARKETS: APPLICATIONS
d) As an alternative way to support a price of $15, sup- e) Fill in the following table for the government pur-
pose the government purchases the difference between chases program:
the quantity demanded at a price of $15 and the quantity
supplied. How much does the government spend on this
price support program?

With Government
With No Program Purchase Program Impact of Program
Consumer surplus
Producer surplus
Impact on the
government budget
Net benefits (consumer
surplus producer
surplus government
expenditure)
Deadweight loss

10.24. Suppose that in the domestic market for com- 10.25. The domestic demand curve for portable ra-
d
d
d
d
d
puter chips the demand is P 110 Q , where Q is the dios is given by Q 5000 100P, where Q is the
number of units of chips demanded domestically when number of radios that would be purchased when the
d
s
s
the price is P . The domestic supply is P 10 Q , price is P. The domestic supply curve for radios is given
s
s
s
where Q is the number of units of chips supplied dome- by Q 150P, where Q is the quantity of radios that
s
stically when domestic suppliers receive a price P . would be produced domestically if the price were P.
Foreign suppliers would be willing to supply any number Suppose radios can be obtained in the world market at
of chips at a price of $30. The government is contemplat- a price of $10 per radio. Domestic radio producers have
ing three possible policies: successfully lobbied Congress to impose a tariff of $5
per radio.
Policy I: The government decides to ban imports of chips.
a) Draw a graph illustrating the free trade equilib-
Policy II: Foreign suppliers are allowed to import chips rium (with no tariff ). Clearly illustrate the equilibrium
(with no tariff ).
price.
Policy III: The government allows imports, but imposes b) By how much would the tariff increase producer sur-
a tariff of $10 per unit.
plus for domestic radio suppliers?
Fill in the table in Figure 10.19, giving numerical answers.
Policy I Policy II Policy III
Policy Ban Imports No Tariff Import Tariff
How many units of chips would be consumed domestically?
How many units of chips would be produced domestically?
What is the size of domestic producer surplus?
What is the size of consumer surplus?
What is the size of government receipts?

FIGURE 10.19 Government Policies for Computer Chip Imports