Demand And Supply Economics Production & Consumption Graph Analysis

timer Asked: Mar 30th, 2019
account_balance_wallet $15

Question Description

Suppose Demand is P=100-3Q and supply is P=Q. Draw this demand and supply diagram for a closed economy (no imports or exports are possible) with the standard axes (P vertical, Q horizontal). Mark carefully on the diagram (for one mark each) the demand curve, the supply curve, and then work out the equilibrium (the numbers are required, not just showing the point).

Question 5 (7 marks) Consider a market described by these demand and supply curves with the production and consumption externalities described in Question 4, and exploring the cases when the world price is 20 or 30. Does free trade always improve welfare? (1 mark) To answer this question do the following welfare calculations (1 mark for each) and see if the trade situations have higher welfare than the autarky situation. (Remember, when free trade is allowed, the world price might be above, or below, the autarky price, which is why we have to consider both cases if we want to generalize about free trade.) For the production externality case calculate welfare in the following cases: (i) no trade with only a production externality vs (ii) importing with only a production externality and (iii) exporting with only a production externality . Then consider the consumption externality case by calculating welfare in the following cases (again, 1 mark each) (iv) no trade with only a consumption externality vs (v) importing with only a consumption externality and (vi) exporting with only a consumption externality. Your measure of welfare should always be Consumer Surplus (CS, i.e. area below demand above price) + Producer Surplus (PS, i.e. area above supply curve and below price) + any externality (which is negative in both cases).

i) no trade with only a production externality

Tutor Answer

School: University of Maryland


flag Report DMCA

Thanks, good work

Brown University

1271 Tutors

California Institute of Technology

2131 Tutors

Carnegie Mellon University

982 Tutors

Columbia University

1256 Tutors

Dartmouth University

2113 Tutors

Emory University

2279 Tutors

Harvard University

599 Tutors

Massachusetts Institute of Technology

2319 Tutors

New York University

1645 Tutors

Notre Dam University

1911 Tutors

Oklahoma University

2122 Tutors

Pennsylvania State University

932 Tutors

Princeton University

1211 Tutors

Stanford University

983 Tutors

University of California

1282 Tutors

Oxford University

123 Tutors

Yale University

2325 Tutors