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 Free Trade Supply Quota Supply Tariff Supply
0 800 0 50 50 50 0
50 750 50 100 150 150 50
100 700 100 150 250 250 100
150 650 150 200 350 350 150
200 600 200 250 450 400 200
250 550 250 300 550 450 250
300 500 300 350 650 500 350
350 450 350 400 750 550 450
400 400 400 450 850 600 550
450 350 450 500 950 650 650
500 300 500 550 1050 700 750
550 250 550 600 1150 750 850
600 200 600 650 1250 800 950
650 150 650 700 1350 850 1050
700 100 700 750 1450 900 1150
750 50 750 800 1550 950 1250
800 0 800 850 1650 100 1350

 

Name Key

 

  1. If there is an absolute prohibition on Japanese VCRs entering the U.S., what would be the equilibrium price 400 and quantity 400of VCRs in the U.S. market?
    2.
  2. What is consumer surplus at the equilibrium in part a.?80,000
  3. What is producer surplus for U.S. firms at the equilibrium in part a.?80,000
  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 250 and quantity?  550 What quantity is supplied by U.S. firms? 250
  5. What is consumer surplus at the equilibrium in part d.?151250
  6. What is producer surplus for U.S. firms at the equilibrium in part d.?31250
  7. Suppose that an import quota of 200 is established for Japanese VCRs. What will be the new equilibrium price 300 and quantity 500?  What quantity is supplied by U.S. firms ? 300
  8. What is consumer surplus at the equilibrium in part g.? 125000
  9. What is producer surplus for U.S. firms at the equilibrium in part g.? 45000
  10. Suppose that the U.S. imposed a $300 tariff on each Japanese VCR imported. What will be the new equilibrium price 350 and quantity ?  450What quantity is supplied by U.S. firms ? 350
  11. What is consumer surplus at the equilibrium in part j.? 101250
  12. What is the producer surplus for U.S. firms at the equilibrium in part j.? 61250
  13. How much revenue is collected by the government under the tariff on Japanese VCRs? 30,000
  14. Which trade policy do American consumers prefer: Prohibition, Free Trade, Quota, or Tarif? What is the basis for your conclusion? Free trade, consumer surplus is maximized.