Take a look at the sugar market: US demand: Q=60-2/3 P US domestic supply: Q=P A
ID: 2505681 • Letter: T
Question
Take a look at the sugar market:
US demand: Q=60-2/3 P
US domestic supply: Q=P
Also, the US could import any quanity from worl producers at (US$) 10/cents per lb
a) In a scenario with free trade- what would be equilibrium price in US, also what would be consumer surplus and producer surplus?
b) Assume FDA changes its mind and opens her US to sugar imports, however the government wants to promote domestic sugar production by giving a subsidy of 15 cents/lb:
what would be new equilibrium price and quanity?
how much is domestic produced and how much is imported?
What is new consumer surplus and producer surplus?
What is deadweight loss compard to the scenario in question a)?
Explanation / Answer
a) 60-2/3P = P
5/3P = 60
P = 180/5 = 36
Q = 36
consumer surplus = (60-36)*36/2 = 432
producer surplus = 24*36/2 = 432
b) P = 10
Q = 60-2/3*10 = 53.33
domestic supply = 10+15 = 25
imports = 28.33
consumer surplus = (60-10)*53.33/2 = 1333.25
producer surplus = 10*53.33/2 = 266.65
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