1. The domestic demand for MP3 players is given by Q = 5000 − 100 P , where price ( P ) is measured in Euros and quantity ( Q ) is measured in thousands of MP3 players per year. The domestic supply...

1. The domestic demand for MP3 players is given by
Q
= 5000 − 100P, where price (P) is measured in Euros and quantity (Q) is measured in thousands of MP3 players per year. The domestic supply curve for MP3 players is given by
Q
= 150P.

a. What is the domestic equilibrium in the MP3 players market?

b. Suppose MP3 players can be imported at a world price of €10 per MP3 player. If free trade were allowed, what would the new market equilibrium be? How many MP3 players would be imported?

c. If domestic MP3 player producers succeeded in having a €5 tariff implemented, how would this change the market equilibrium? How much would be collected in tariff revenues? How much consumer surplus would be transferred to domestic producers? What would the deadweight loss from the tariff be?

d. How would your results from part (c) be changed if the government reached an agreement with foreign suppliers to ‘voluntarily’ limit the MP3 players they export to 1 250 000 per year? Explain how this differs from the case of a tariff.