In: Economics
Suppose we have the following table that summarises the domestic demand and supply schedule for Canadian crude oil
Price |
Quantity Demanded |
Quantity Supplied |
98 |
16 |
10 |
99 |
15 |
11 |
100 |
14 |
12 |
101 |
13 |
13 |
102 |
12 |
14 |
103 |
11 |
15 |
104 |
10 |
16 |
105 |
9 |
17 |
106 |
8 |
18 |
If Canada does not trade with the rest of the world, what is the equilibrium price ___ ? (Answer is 101, how did they get that?)
What is the equilibrium quantity _____? (Answer is 13, how did they get that?)
Suppose the world price is 102, and Canada opens up free trade, what is the new equilibrium price in Canada _____? (Answer is 102, how did they get that?)
Canada will have ____ units in its domestic market? (Answer is 2, how did they get that?)
Suppose the world price is 102 and Canada imposes a tariff of 4 then Canada exports ____ units? (Answer is 10, how did they get that?)
If Canada does not trade, its equilibrium would be where QD=QS
Equilibrium price = 101 and Quantity = 13
When the world price is 102, since the price is greater than the domestic price, Canada will export goods
New equilibrium price = 102 as world price would be the domestic price after it opens for trade
Canada will have 2 units in the domestic market as the quantity demanded at the world price = 12 whereas QS = 14 so exports = 14-12 = 2
With the tariff, the price will increase to 102+4 = 106 where QD = 8 and QS = 18 so the Exports = 18-8 = 10