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Assignment BUS 525

This document contains an assignment on managerial economics submitted by a student. It analyzes Bangladesh's domestic supply and demand for rice when imported at $9 per pound on the world market. It confirms that demand is given by QD=40-2P and supply by QS=P. With no restrictions, Bangladesh would import 16 million pounds. If Bangladesh imposes a $3 per pound tariff, the domestic price would be $12, imports would be 8 million pounds, tariff revenue would be $24 million, and deadweight loss would be $12 million.

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Mohammad Shaniaz Islam
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316 views

Assignment BUS 525

This document contains an assignment on managerial economics submitted by a student. It analyzes Bangladesh's domestic supply and demand for rice when imported at $9 per pound on the world market. It confirms that demand is given by QD=40-2P and supply by QS=P. With no restrictions, Bangladesh would import 16 million pounds. If Bangladesh imposes a $3 per pound tariff, the domestic price would be $12, imports would be 8 million pounds, tariff revenue would be $24 million, and deadweight loss would be $12 million.

Uploaded by

Mohammad Shaniaz Islam
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 7

NORTH SOUTH UNIVERSITY

Course: Managerial Economics (BUS 525)

Report
On
Assignment No. 5

Course Instructor: Dr. Tamgid Ahmed Chowdhury

Date: December 10, 2014


Student Name

ID

Section

Letter of Transmittal
August 22, 2014
Dr. Tamgid Ahmed Chowdhury
Instructor
Managerial Economics (BUS 525)
North South University, Bangladesh.
.
Subject: Submission of Term Project

Dear Sir,
This is much to our delight that we are submitting our report on Assignment no. 5.
Thank you very much for the guideline you have provided during your class.
Now, we would like to request you to please accept our assignment report and oblige thereby.
Thank you.

Sincerely yours,
Sakhawat Hossen

2|Page

Assignment - 5:
Rice is traded in a competitive world market and imported into Bangladesh at a world
price of $9 per pound. Bangladeshs domestic supply and demand for various price levels
are shown in the following table.

Price

BD Supply

BD Demand

(Million Pounds)

(Million Pounds)

34

28

22

12

16

15

10

10

18

12

a) Confirm that the demand curve is given by QD = 40-2P, and that the supply curve is
given by QS = P
b) Confirm that if there were no restrictions on trade, Bangladesh would import 16 million
pounds.
c) If Bangladesh imposes a tariff of $3 per pound, what will be the BD price and level of
imports? How much revenue will the government earn from the tariff? How large is the
deadweight loss?

3|Page

a) Confirm that the demand curve is given by QD = 40-2P, and that the supply curve is
given by QS = P

In order to find the equation of demand, we have to find out the linear function QD = a + bP. So
that line it represents passes through two of the point in the table here we have. Suppose the
points are (9,22) and (6,28).
Firstly we need to find the slope b,
=

= -2 = b

Secondly, Putting the value of quantity, price & slope b in the liner function for any demand &
price level we can find the value of a.
Price

BD Supply

BD Demand

(Million

(Million

Pounds)

Pounds)

34

28

22

Similarly in order to find out the equation

12

16

of supply, we have to solve the supply

15

10

10

18

12

22 = a-2(9)
a= 22+18
or a = 40
So, QD = 40-2P

equation QS = c + dP. So that it passes


through two points such as (9,6) and (6, 4).

The slope d is:


=

= P=d

Secondly, Putting the value of quantity, price & slope b in the liner function for any demand &
price level we can find the value of c.
6=c+

(9) or, c = 0

So, QS = P

4|Page

b) Confirm that if there were no restrictions on trade, Bangladesh would import 16


million pounds.

Price

BD Supply

BD Demand

(Million

(Million Pounds)

Pounds)
3

34

28

22

12

16

15

10

10

18

12

If there were no trade restrictions, Bangladesh would import their required amounts at the world
price of $9.00.

From the table, we found out that at price $9.00 domestic supply would be 6 million pounds.
And domestic demand is 22 million pounds.

Import amount is the difference between domestic demand and domestic supply.
So imports would be 22 6 = 16 million pound.

5|Page

c) If Bangladesh imposes a tariff of $3 per pound, what will be the BD price and level
of imports? How much revenue will the government earn from the tariff? How large
is the deadweight loss?

6|Page

Price

BD Supply

BD Demand

(Million

(Million

Pounds)

Pounds)

34

28

22

12

16

15

10

10

18

12

With a $3.00 tariff, price in Bangladesh will be $12 (the world price + tariff). At this
price, demand is 16 million pounds and Bangladesh supply is 8 million pounds.

Therefore Import will be difference between domestic demand and domestic supply. So,
16-8 = 8 million pound of rice is imported.

The government will collect revenue = C = $(12-9) x (16-8) = $24 million.

To find deadweight loss, we have to determine the changes in consumer and producer
surpluses. After the tariff is imposed in BD the price rose to $12. Consumers lose the
area A + B + C + D because they are now paying the higher price of $12 and purchasing
fewer pounds of rice.

On the other hand Bangladesh producers gain area A because they are getting higher
price after the tariff imposed and also they can sell higher quantity.

Therefore the deadweight loss


= loss in consumer surplus - gain in producer surplus - tariff revenue

DWL = (A+B+C+D) - A C = B + D = (12-9)(8-6) +

7|Page

(12-9)(22-16) = $12 million.

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