For a small country called Boxland, the equation of the domestic demand curve fo

Question

For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q^D = 200 - 2P, where Q^D represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. middot For Boxland, the equation of the domestic supply curve for cardboard is Q^s = -60 + 3P, where Q^s represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard. Suppose the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard, domestic producers of cardboard become better off and domestic consumers of cardboard become worse off. domestic producers of cardboard become better off and domestic consumers of cardboarc become better off. domestic producers of cardboard become worse off and domestic consumers of cardboard become better off. domestic producers of cardDoard become worse off and domestic consumers of cardboard become worse off.

Explanation / Answer

Demand curve for cardboard is -

Qd = 200 - 2P

Supply curve of cardboard is -

Qs = -60 + 3P

If Boxland prohbits international trade then market for cardboard boxes in Boxland will be in equilibrium when,

Qd = Qs

200 - 2P = -60 + 3P

5P = 260

P = 52

Equilibrium price (without international trade) = $52 per ton of cardboard

Quantity demanded (at equilibrium price) = 200 - 2P = 200 - 2*52 = 200 - 104 = 96 tons

Quantity supplied (at equilibrium price) = -60 + 3P = -60 + 3*52 = -60 + 156 = 96 tons

So, without engaging in international trade -

Domestic consumers are demanding 96 tons of cardboard at $52 per ton of cardboard.

Domestic suppliers are supplying 96 tons of cardboard at $52 per ton of cardboard.

Now, if Boxland engages in international trade then being a small country it have to accept the world price.

World price = $45 per ton of cardboard

Quantity demanded (at world price) = 200 - 2P = 200 - 2*45 = 200 - 90 = 110 tons

Quantity supplied (at world price) = -60 + 3P = -60 + 3*45 = -60 + 135 = 75 tons

So, after engaging in international trade -

Domestic consumers are demanding 110 tons of cardboard at $45 per ton of cardboard.

Domestic suppliers are supplying 75 tons of cardboard at $45 per ton of cardboard.

Thus, it can be seen that as Boxland enters into the international trade, domestic consumers are not only paying less but are also consuming more.

On the other hand, domestic suppliers are not only selling at less but are also supplying less as well.

Thus, domestic producers of cardboard boxes become worse-off and domestic consumers of cardboard boxes become better-off.

Hence, the correct answer is option (C).

Related Questions

Navigate

• Browse (All)
• Browse F
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.