Question

Suppose that the world price for a good is PW = 80, and the domestic demand & supply curves are given by the following equations: P = 180 – 0.05QD P = 20 + 0.05QS. If there is no protection, How much is consumed (quantity demanded), how much is produced at home, and what is the quantity imported/exported?

Answer 1

The quantity consumed is 2000, the quantity produced at home is 1200, and the quantity imported/exported is 800.

Step-by-step explanation:

Step 1:

Determine the quantity demanded by substituting the world price (PW = 80) into the demand equation: P = 180 – 0.05QD. Solving for QD, we get QD = (180 - 80) / 0.05 = 2000.

Step 2:

Determine the quantity supplied by substituting the world price (PW = 80) into the supply equation: P = 20 + 0.05QS. Solving for QS, we get QS = (80 - 20) / 0.05 = 1200.

Step 3:

The quantity consumed is equal to the quantity demanded, which is 2000. The quantity produced at home is equal to the quantity supplied, which is 1200. To find the quantity imported or exported, we subtract the quantity produced at home from the quantity consumed. Thus, the quantity imported/exported is 2000 - 1200 = 800.