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Huppose the world price-x ': / grpia student aestion × C coursesaplia.com/af/servlet/quiz?ctx-shuang.xu-00288quiz action-takeQuiz8iqui HCCS ECON 2301-96632 z_probGuid RCPLCOA80101000000213227d01500008 38 janyang zhou 1 Cu am 2 (Chapter 7-9, 23-27) Assignment | Back to Assignment Due Sunday ttempts: Score: 1 8. Chapter mank0?t, Section 62, Problem 009 Scenario 9-2 For a small country called Boxland, the equation of the domestic n tons the equation of the domestic demand curve for cardboard is -200-2P, whereQ represents the domestic quantity of cardb Boxland, the equation of the domestic supply curve for cardboard is --60+3P, where Q represents the domestic ation of the domestic supply curve for cardboard is 2.-60+3P, whered represents cardboard supplied, in tons, and P again represents the price of a ton of carlpoard. Refer to Scenario 9-2. Suppose O A domestic producers of cardboard become better olf and domestix consumers of cardbowrd become better off O 8. demestic producers of carndboard become worse off and domestic consumers of cardboard become better of O C domestic producers of cardboard become worse off and domestic consumers of cardbourd become worse of OD. domestic praducers of cardboard become better off and damestic consumers of cardboerd become worse of the world price of cardboard is $45. Then, if Boxland goes from prohibiting international trade in cardboard to allowing international trade in cardboard

Explanation / Answer

IMAGE - 1 - Correct option (B).

In absence of trade, equilibrium is when QD = QS

200 - 2P = - 60 + 3P

5P = 260

P = 52

Q = 200 - (2 x 52) = 200 - 104 = 96

Consumer surplus (CS) = Area between demand curve & price

From demand curve, When QD = 0, P = 200/2 = 100 [Reservation price]

CS = (1/2) x $(100 - 52) x 96 = (1/2) x $48 x 96 = $2,304

Producer surplus (PS) = Area between supply curve & price

From supply curve, When QS = 0, P = 60/3 = 20

PS = (1/2) x $(52 - 20) x 96 = (1/2) x $32 x 96 = $1,536

When free trade is allowed, domestic price = world price = $45

At this price, QD = 200 - 2P = 200 - (45 x 2) = 200 - 90 = 110

CS = (1/2) x $(100 - 45) x 110 = (1/2) x $55 x 110 = $3,025

QS = - 60 + 3P = - 60 + (3 x 45) = - 60 + 135 = 75

PS = (1/2) x $(45 - 20) x 75 = (1/2) x $25 x 75 = $937.5

So, CS has increased & PS has decreased. Domestic producers are worse off & domestic consumers are better off.

NOTE: First question is answered.

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