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Calculate equilibrium price and quantity

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Reference no: EM131814954

Assume that the domestic demand for a good is QD = 100-P and domestic supply is given by QS = 40 + P. The market for this good is perfectly competitive.

(a) Assume that the economy is closed. Calculate equilibrium price and quantity and show them in a graph.

(b) Assume that the economy opens to trade and that the world price for this good is £50. What are the equilibrium price and quantity in the domestic market? Show them in a graph.

(c) Calculate the consumer and the producer surplus in both (a) and (b). Compare them and discuss your findings, with special reference to whether it is beneficial for the country to open to trade.

Reference no: EM131814954

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