"economics"exercise:Demand and supply song
The diagram below shows the domestic demand and supply curves for a country that imports a commodity, where PW is its world price and PT is its domestic price after the imposition of a tariff.
The gain in government revenues arising from the imposition of the tariff is best described by area(s):
C、 K + M.
An Australian firm purchases a patent for USD20,000 and machinery for USD21,500 from a US firm when the exchange rates are as follows:
The impact of these transactions on the capital account of Australia is closest to:
A 、 AUD19,225.
A is correct. With the imposition of the tariff, domestic supply will increase from Q1 to Q2, but domestic demand will fall from Q4 to Q3. The net amount imported will be Q3 – Q2. The change in government revenues is Area L, which is the rectangle (Q3 – Q2) × (PT – PW).
B is incorrect. It is the gain in producer surplus.
C is incorrect. It is deadweight loss.
A is correct. The purchase of machinery is an import and affects the current account, not the capital account, so it is ignored. The purchase of a non-produced, non-financial asset such as a patent affects the capital account. The impact on the capital account in AUD is: USD20,000 × (1EUR/1.29USD) × (AUD1.24/1EUR) = 19,225AUD
C is incorrect. It includes the machinery purchase in the capital account instead of the patent. USD21,500 × (1EUR/1.29USD) × (AUD1.24/1EUR) = 20,667
B is incorrect. It includes both machinery and patent. USD41,500 × (1EUR/1.29USD) × (AUD1.24/1EUR) = 39,891AUD