Question

9.The following relations describe monthly demand and supply for a computer support service catering to small businesses.

Q_d= 3000 – 10P

Q_s= -1000 + 10P

What is the autarky price and quantity produced?

What is the Welfare of the country as a whole before trade? ________________

If the world Price is $250, is this country a net importer or exporter? _________

And by how much? _________

What is the welfare of the country after trade? ____________

What is the net gain from trade?

10. The following relations describes the demand and supply for good x..

Q_d= 100 – 20P

Q_s= 20 + 20P

What is the autarky price and quantity produced?

What is the Welfare of the country as a whole before trade?

If the world Price is $1, is this country a net importer or exporter?

And by how much?

What is the welfare of the country after trade?

What is the net gain from trade? __________

Answer 1

9.
Given
Qd = 3000 - 10P
Qs = -1000+10P

Autarky is also known as Close trade. Under Close trade, the economy is not free to trade with the rest of the world economy.
To obtain the autarky price and quantity, equate the quantity demand equation to quantity supplied equation.
Qd = Qs
3000 - 10P = -1000+10P
-10P-10P = -1000-3000
-20P = -4000
P = -4000
------
-20

P = $200

Here the price of the computer support service is $200.

Substitute for P = 200 in either of the equations.

Qd = 3000-10P
Qd = 3000 - 10(200)
Qd = 3000-2000
Qd = 1000

Substitute for P = 200 in supply equation

Qs = -1000+10P
Qs = -1000+10(200)
Qs = -1000+2000
Qs = 1000

As quantity demanded is equal to quantity supplied, it is implied that the economy is in equilibrium at this price level.

As the country opens up to free trade, the domestic price would be equal to the world price = $250.

At this world price, the quantity demanded of computer support service would be

Qd = 3000-10P
Qd =3000-10(250)
Qd = 3000-2500
Qd = 500

Quantity supplied of computer support service

Qs = -1000+10P
Qs = -1000+10(250)
Qs = -1000+2500
Qs = 1500

As the quantity supplied exceeds the quantity demanded, the country would choose to export.

Total exports = Quantity supplied - Quantity demanded
= 1500 - 500
           = 1000

After trade, the country would choose to export 1000 units of computers
             
10.
Given
Qd = 100-20P
Qs = 20+20P

Autarky is also known as Close trade. Under Close trade, the economy is not free to trade with the rest of the world economy.
To obtain the autarky price and quantity, equate the quantity demand equation to quantity supplied equation.
Qd = Qs
100-20P= 20+20P
-20P-20P = 20-100
-40P = -80
P = -80
------
-40

P = $2

Here the price of the good X is $2

Substitute for P = $2 in either of the equations.

Qd = 100-20P
Qd = 100-20(2)
Qd = 100-40
Qd = 60

Substitute for P = $2 in supply equation

Qs = 20+20P
Qs = 20+20(2)
Qs = 20+40
Qs = 60

As quantity demanded is equal to quantity supplied, it is implied that the economy is in equilibrium at this price level.

As the country opens up to free trade, the domestic price would be equal to the world price = $1

At this world price, the quantity demanded of computer support service would be

Qd = 100-20P
Qd =100-20(1)
Qd = 100-20
Qd = 80

Quantity supplied of computer support service

Qs = 20+20P
Qs = 20+20(1)
Qs = 20+20
Qs = 40

As the quantity demanded exceeds the quantity supplied, the country would choose to import

Total exports = Quantity demanded - Quantity supplied
= 80-40
           = 40
             
After trade, the country would choose to import 40 units of good 'x'