In: Economics
Problem 1. ( JUST NEED PROBLEM 2 SOLVED)
Home’s demand curve for wheat is
D = 100-20P. Its supply curve is. S = 20 + 20P.
Suppose that Home is a small country.
a. Graph the demand and supply curves.
Problem 2
In the example of problem 1, suppose Home imposes a specific tariff of 0.25 on wheat imports.
Answer:
Given that:
Home's demand curve for what s D=100-20P.Its supply is S=20+20P Home is a small country.
a)
Price($) | Quantity demanded | Quantity suppiled |
0.00 | 100 | 20 |
0.50 | 90 | 30 |
1.00 | 80 | 40 |
1.50 | 70 | 50 |
200 | 60 | 60 |
2.50 | 50 | 70 |
3.00 | 40 | 80 |
3.50 | 30 | 90 |
4.00 | 20 | 100 |
4.50 | 10 | 110 |
5.00 | 0 | 120 |
b)
From the above graph, we observe that the demand curve and the supply curve intersect when the price = $2 and the quantity = 60 units
In autarky, the price of wheat in Home = $2
c)
As it is given that Home is a small country, opening up Home for trade does not affect the world price and the price of wheat in Home would be equal to the world price.
Hence, the price of wheat in Home under free trade = $1.50
d)
When price of wheat = $1.50, we obtain from the above table that the domestic quantity demanded(Domestic consumption) = 70 units and the domestic quantity supplied(Domestic production) = 50 units
As the domestic quantity demanded is higher than the domestic quantity supplied, the excess demand in Home would be met through imports
Quantity of imports in Home = Excess demand = Domestic quantity
demanded - Domestic quantity supplied = 70 - 50 = 20
units