Question 1. The following figure shows the market of cars in U.S. after opening

ID: 1195288 • Letter: Q

Question

Question 1. The following figure shows the market of cars in U.S. after opening of trade in cars:

a. Is this country an exporter or importer of cars when trade opens? What is the quantity of its exports or imports?

b. Label the points on graph showing production and consumption of cars after trade is opened.

c. Calculate the consumer surplus prior to opening of trade?

d. Calculate the consumer surplus after opening of trade?

e. Calculate the consumers gain from trade?

f. Calculate the gain to the country from trade?

g. Do producers gain from trade?

Price Market for cars in U.S. car 3,000 car 35,000 S, MCC 25,000- Final/Post Trade Price 20 35 million cars

a) The country will import the car when trade opens. The quantity of import is 30 million cars

b) When trade is oppened, production is 5 millions and consumption is 35 millions.

c) Consumer surplus prior to opening of trade = (10000 x 20)/2 =$100,000 million

d) Consumer surplus after opening of trade = (17500 x 35)/2 =$306,250 million

e) consumers gain from trade = $306,250 - $100,000 =$206,250 million

f) gain to the country from trade = $7500 per car

g) producers do not gain from trade.

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