Temple University
Department of Economics

Free Trade, Tariffs and Quotas

The data in the table below is for the VCR market in the U.S. At a price of \$100 Americans would want to buy 700 VCRs and domestic manufacturers would supply 100 VCRs to the domestic market. At that price Japanese manufacturers would want to export 150 VCRs to the United States. (Hints and tips: There are some extra columns in the table so that you can keep the numbers straight when doing parts d., g., and j. The area of a triangle is 1/2*base*height.)

 1998 VCR Market United States Japan Price Quantity Demanded Quantity Supplied Quantity Supplied 0 800 0 50 50 750 50 100 100 700 100 150 150 650 150 200 200 600 200 250 250 550 250 300 300 500 300 350 350 450 350 400 400 400 400 450 450 350 450 500 500 300 500 550 550 250 550 600 600 200 600 650 650 150 650 700 700 100 700 750 750 50 750 800 800 0 800 850

Name

1. If there is an absolute prohibition on Japanese VCRs entering the U.S., what would be the equilibrium price and quantity of VCRs in the U.S. market?
2. What is consumer surplus at the equilibrium in part a.?
3. What is producer surplus for U.S. firms at the equilibrium in part a.?
4. Suppose that times change and Japan is granted free trade privileges and their VCRs are now allowed into the U.S. What are the new equilibrium price and quantity?  What quantity is supplied by U.S. firms?
5. What is consumer surplus at the equilibrium in part d.?
6. What is producer surplus for U.S. firms at the equilibrium in part d.?
7. Suppose that an import quota of 200 is established for Japanese VCRs. What will be the new equilibrium price and quantity?  What quantity is supplied by U.S. firms ?
8. What is consumer surplus at the equilibrium in part g.?
9. What is producer surplus for U.S. firms at the equilibrium in part g.?
10. Suppose that the U.S. imposed a \$300 tariff on each Japanese VCR imported. What will be the new equilibrium price and quantity ?  What quantity is supplied by U.S. firms ?
11. What is consumer surplus at the equilibrium in part j.?
12. What is the producer surplus for U.S. firms at the equilibrium in part j.?
13. How much revenue is collected by the government under the tariff on Japanese VCRs?
14. Which trade policy do American consumers prefer: Prohibition, Free Trade, Quota, or Tarif? What is the basis for your conclusion?