The table illustrates the demand and supply schedules for television sets in Venezuela, a “small” nation that is unable to affect world prices.
Price per TV set — Quantity Demanded — Quantity Supplied
100 — 900 — 0
200 — 700 — 200
300 — 500 — 400
400 — 300 — 600
500 — 100 — 800
a. No change
b. No need to calculate the consumption redistributive, protective and revenue effects. Instead calculate the change in Consumer surplus, change in producer surplus, change in Government revenue and DWL. I also want the three possible cases: When the Venezuelan import companies organize as buyers, this is the same as them getting the import licenses free of charge. When the foreign exporters organize as monopoly seller, this is the same as the foreigners getting the license free of charge (VER). The last case is when the domestic government auctions the licenses to domestic importers/firms. I also want this last case, although it is not asked in the question.
c. Draw a separate diagram. Again I want the change in Consumer surplus, change in producer surplus, change in Government revenue and DWL.
d. NOT IN THE TEXT. Draw a separate diagram. Assume that the world price of TVs is 350 so that Venezuela becomes an exporter of TVs. Determine the quantity produced, consumed and exported by Venezuelans. Now assume that an EXPORT SUBSIDY = 100 is paid to Venezuelan exporters. Determine the quantity produced, consumed and exported. What is the price paid by foreign consumers of TVs, what is the price paid by Venezuelan consumers. Calculate the change in Consumer surplus, change in producer surplus, change in Government revenue and DWL.
