(1) Consider the economy of Happy Island that has the following domestic demand and supply equations...

  

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(1) Consider the economy of Happy Island that has the following domestic demand and supply equations for coffee beans: Qd 100-5P: Domestic Demand Qs = 5P _ Domestic Supply No trade equilibrium: a. Find the average domestic price and quantity demanded if Happy Island economy is in a state of autarky. 5P = 100 - 5P 100 = 5P+5P = Q 100 510 = 50 100 = 10P P = 100/10 P = 10 ANS: P=10 (Domestic price), Q = 50 (Quantity demanded in Happy Island) b. Graph the domestic demand and supply equations to illustrate the no trade equilibrium price and quantity. Price 25+ 20 15+ 2325 10- -Demand -Supply Quantity 20 40 60 80 100 200 ANS: Suppose the economy opens-up to free trade and the world price is $15. c. Include the world price in your diagram. d. Calculate domestic demand with free trade and include it in your diagram. Qd=100-5P Qd 100 5* 15 Qd=25 e. Calculate domestic supply with free trade and include it in your diagram. Qs = 5P Qs = 5(15) Qs = 75 f. Calculate the quantity of imports or exports and show it on your diagram. 75 25 50 units g. Calculate consumer surplus with free trade. CS=2* (Base * Height) CS (85 * -10) CS=-425 h. Calculate producer surplus with free trade. PS = * (-10 *-60) PS = 300 (1) Consider the economy of Happy Island that has the following domestic demand and supply equations for coffee beans: Qd 100-5P: Domestic Demand Qs = 5P _ Domestic Supply No trade equilibrium: a. Find the average domestic price and quantity demanded if Happy Island economy is in a state of autarky. 5P = 100 - 5P 100 = 5P+5P = Q 100 510 = 50 100 = 10P P = 100/10 P = 10 ANS: P=10 (Domestic price), Q = 50 (Quantity demanded in Happy Island) b. Graph the domestic demand and supply equations to illustrate the no trade equilibrium price and quantity. Price 25+ 20 15+ 2325 10- -Demand -Supply Quantity 20 40 60 80 100 200 ANS: Suppose the economy opens-up to free trade and the world price is $15. c. Include the world price in your diagram. d. Calculate domestic demand with free trade and include it in your diagram. Qd=100-5P Qd 100 5* 15 Qd=25 e. Calculate domestic supply with free trade and include it in your diagram. Qs = 5P Qs = 5(15) Qs = 75 f. Calculate the quantity of imports or exports and show it on your diagram. 75 25 50 units g. Calculate consumer surplus with free trade. CS=2* (Base * Height) CS (85 * -10) CS=-425 h. Calculate producer surplus with free trade. PS = * (-10 *-60) PS = 300

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