Question

In: Economics

Suppose we have the following table that summarises the domestic demand and supply schedule for Canadian...

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?)

Solutions

Expert Solution

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


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