Question

10. Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations:

QS = –60 + 3P QD = 390 – 2P

In the absence of trade with the rest of the world, the consumer surplus in the United States skateboard market equals _____ and the producer surplus equals_____. a. $7,050; $11,525 b. $31,500; $9,450 c. $20,474; $7,350 d. $11,025; $7,350

11. Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations:

QS = –60 + 3P QD = 390 – 2P

The change in consumer surplus when the United States engages in free trade and imports skateboards from the rest of the world at a per unit price of $75 equals _____________ and the change in producer surplus equals _______________. a. +$2,850 and -$3,3375 b. –$2,850 and +$3,375 c. –$6,300 and +$2,812.5 d. +$3,375 and -$2,812.5

12. Suppose the domestic supply (QS) and demand (QD) for skateboards in the United States are given by the following set of equations:

QS = –60 + 3P QD = 390 – 2P

The net national welfare to the United States when it engages in free trade and imports skateboards from the rest of the world at a per unit price of $75 is? a. +$225 b. +$562.5 c. -$562.5 d. -$337.5.

Answer 1

10)

Q^d= 390-2P

Q^s= -60+3P

Equilibrium price and quantity is calculated by equating Q^dand Q^s_.

390-2P=-60+3P

390+60=3P+2P

450=5P

P=450/5=$90

Equilibrium price = $90

To find the equilibrium quantity, substitute P= $90 in either the supply or demand equation.

Substituting in Q_d= 390-2(90)

Q_d=390-180=210

Equilibrium quantity = 210.

In the absence of trade

CS=

To find P max, set q=0.

0=390-2P

2P=390

P=390/2=195

CS is the area of triangle, which is ½ x base x height

Base= equilibrium quantity-0=210-0=210

Height = Pmax-equilibrium price=195-90=105

CS= ½ x 210 x105

=1/2 x 22050=$11025.

PS=

Q^s= -60+3P

Setting Q=0

0=-60+3P

60=3P

P=20

Base of triangle= Base= equilibrium quantity-0=210-0=210

Height of triangle= 90-20=70

Area of triangle= ½ x base x height

=1/2 x 210 x 70=1/2x14700=$7350.

Before trade PS=$7350.

CS=$11025.

Total welfare = PS +CS=$7350+$11025=$18,375.

11)

After trade, when P=$75

Plug this in the demand equation Q^d= 390-2P

New quantity demanded is 390-2(75)=390-150=240

CS= ½ x base x height

Base is (240-0)

Height= 195-75, where 195 is Pmax

CS=1/2x 240x120=1/2x28,800=$14,400

Change in CS=$14,400-$11025=$3375

Q^s= -60+3P

Qs=-60+3(75)=-60+225=165

PS= Base of triangle= Base= equilibrium quantity-0=165-0=165

Height of triangle= 75-20=55

Area of triangle= ½ x base x height

=1/2 x 165 x 55=1/2x 9075=$ 4537.50

Change in PS=$7350-$4357.50=-$2812.50

12) Change in net national welfare= +$3375-$2812.50=$562.50