Suppose the domestic supply (Qs) and demand (Qd) for MP3 players in the U.S. are

Question

Suppose the domestic supply (Qs) and demand (Qd) for MP3 players in the U.S. are given by the set of equations that follows:

    P = 2.5 + 0.1Qs                               P = 175 – 0.2Qd  

A. In the absence of international trade in MP3 players (autarky), the price of MP3 is $60. How many MP3 players will be produced (supplied) and demanded in the United States?

B. If the U.S. can import MP3 players from the rest of the world at a per unit price of $50, how many MP3 players will be produced in the U.S.?

C. If the U.S. can import MP3 players from the rest of the world at a per unit price of $50, what will be the total demand for MP3 players in the United States?

D. If the U.S. engages in free trade and the international price of MP3 players is $50, it would import _____ MP3 players from the rest of the world.

E. Net gain for the United States after trade is ____.

Explanation / Answer

A. Putting P = 60 in both demand and supply functions.

QS : 60 = 2.5+0.1QS or Qs = 575 units

and Qd : 60 = 175 -0.2Qd or Qd = 575 units.

Thus at price of $60, 575 MP3 players will be produced and sold in US in autarky.

B ) At $50 QS : 50 = 2.5 +0.1Qs or Qs = 475 units.

Thus when US imports MP3 at price of $50, US will produce 475 MP# players.

C) At $50 Qd : 50 = 175 - 0.2Qd or Qd = 625 units.

Thus when US imports MP3 at price of $50, US will demand 625 MP3 players.

D) If the U.S. engages in free trade and the international price of MP3 players is $50, it would import "Demand at $50 - Domestic supply at $50 = 625-475 = 150 "MP3 players from the rest of the world.

Related Questions

Navigate

• Browse (All)
• Browse S
• Subjects

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