Draw a supply and demand curve for a generic commodity

Reference no: EM131652881

Assignment Questions -

Question 1: Assume this country is in autarky → no trade throughout the entire question.

(a) On a piece of paper draw a supply and demand curve for a generic commodity on the same graph.

(b) Label the equilibrium quantity supplied (Q_A) and equilibrium price (P_A) assuming perfect competition.

(c) Suppose that the government decrees that the price of the commodity will be fixed at a price LOWER than P_A. Label this new price as P_G and label the new quantity associated with this price as Q_G. Note: the new equilibrium price will result in excess DEMAND.

(d) Label all possible areas under the graph formed by the intersection of the lines on the graph starting from area A in the upper left-hand corner and continuing towards the lower right-hand corner.

(e) Write out consumer surplus (CS_A) at price P_A using the areas from (d).

(f) Write out producer surplus (PS_A) at price P_A using the areas from (d).

(g) Find total welfare for this country at price P_A using the areas from (d).

(h) Write out consumer surplus (CS_G) at price P_G using the areas from (d).

(i) Write out producer surplus (PS_G) at price P_G using the areas from (d).

(j) Find total welfare for this country at price P_G using the areas from (d).

(k) Find the difference between consumer surplus in (h) and (e). Are consumers better or worse off under the new price P_G?

(l) Find the difference between producer surplus in (i) and (f). Are producers better or worse off under the new price P_G?

(m) Find the difference between total welfare in (j) and (g). Is this country better or worse off under price P_G?

(n) What is the deadweight loss (in terms of areas) associated with the government policy that fixes the price at P_G?

Question 2: Assume this country is a SMALL country so that its actions do not affect world prices

(a) On a piece of paper draw a supply and demand curve for a generic commodity on the same graph.

(b) Label the equilibrium quantity supplied (Q_A) and equilibrium price (P_A) that would exist if this country was in autarky (i.e. no trade).

(d) From the graph, decide whether this country faces excess supply or excess demand. If trade were to be allowed at the P_F would this country become an exporter or importer of this commodity?

(e) Suppose that this country opens its borders to free trade. Label the new equilibrium domestic price (P_F) the new equilibrium quantity supplied (Q_S), the new equilibrium quantity demanded (Q_D), and the amount that is traded (X_F if this country is an exporter or I_F if it is an importer).

(f) Label all possible areas under the graph formed by the intersection of the lines on the graph starting from area A in the upper left-hand corner and continuing towards the lower right-hand corner.

(g) Write out consumer surplus (CS_A) under autarky using the areas from (f).

(h) Write out producer surplus (PS_A) under autarky using the areas from (f).

(i) Find total welfare for this country under autarky using the areas from (f).

(j) Write out consumer surplus (CS_F) under free trade using the areas from (f).

(k) Write out producer surplus (PS_F) under free trade using the areas from (f).

(l) Find total welfare for this country under free trade using the areas from (f).

(m) Find the difference between consumer surplus in (j) and (g). Are consumers better or worse off under free trade?

(n) Find the difference between producer surplus in (k) and (h). Are producers better or worse off under free trade?

(o) Find the difference between total welfare in (l) and (i). Is this country better or worse off under free trade?

(p) What are the gains from free trade (in terms of areas)?

Question 3: Assume this country is a SMALL country so that its actions do not affect world prices

(a) On a piece of paper draw a supply and demand curve for a generic commodity on the same graph.

(b) Draw a world price (P_F) that is BELOW the equilibrium price that would exist in autarky.

(c) Label the equilibrium quantity supplied (Q_F^S), the equilibrium quantity demanded (Q_F^D), and the quantity imported (I_F) under free trade.

(d) Suppose that the government imposes a tariff on imports so that foreign exporters have to pay an extra amount equal to T whenever they sell their product into this country. Write the line segment that represents this tariff on the Y-axis of the graph and label it T. Label the new equilibrium domestic price (P_G), the new equilibrium quantity supplied (Q_G^S), the new equilibrium quantity demanded (Q_G^D), and the new level of imports (I_G) under the tariff.

(e) Label all possible areas under the graph formed by the intersection of the lines on the graph starting from area A in the upper left-hand corner and continuing towards the lower right-hand corner.

(f) Write out consumer surplus (CS_F) under free trade using the areas from (e).

(g) Write out producer surplus (PS_F) under free trade using the areas from (e).

(h) Write out government revenue (GR_F) under free trade using the areas from (e).

(i) Find total welfare for this country under free trade using the areas from (e).

(j) Write out consumer surplus (CS_G) under the tariff using the areas from (e).

(k) Write out producer surplus (PS_G) under the tariff using the areas from (e).

(l) Write out government revenue (GR_G) under the tariff using the areas from (e).

(m) Find total welfare for this country under the tariff using the areas from (e).

(n) Find the difference between consumer surplus in (j) and (f). Are consumers better or worse off under the tariff?

(o) Find the difference between producer surplus in (k) and (g). Are producers better or worse off under the tariff?

(p) Find the difference between total welfare in (m) and (i). Is this country better or worse off under the tariff?

(q) What is the deadweight loss to this country caused by the tariff (in terms of areas)?

Question 4: Assume this country is a SMALL country so that its actions do not affect world prices

(a) On a piece of paper draw a supply and demand curve for a generic commodity on the same graph.

(b) Draw a world price (P_F) that is BELOW the equilibrium price that would exist in autarky.

(c) Label the equilibrium quantity supplied (Q_F^S), the equilibrium quantity demanded (Q_F^D), and the quantity imported (I_F) under free trade.

(d) Suppose that the government restricts the quantity imported to an amount that is significantly less than the quantity that would be imported under free trade. Write the line segment that represents this (smaller) import amount on the X-axis of the graph and label it I_G. Label the new equilibrium domestic price (P_G) the new equilibrium quantity supplied (Q_G^S), and the new equilibrium quantity demanded (Q_G^D). Assume that foreign exporters do not have to pay a license fee for the privilege of exporting the commodity to this country.

(f) Write out consumer surplus (CS_F) under free trade using the areas from (e).

(g) Write out producer surplus (PS_F) under free trade using the areas from (e).

(h) Find total welfare for this country under free trade using the areas from (e).

(i) Write out consumer surplus (CS_G) under the import quota using the areas from (e).

(j) Write out producer surplus (PS_G) under the import quota using the areas from (e).

(k) Find total welfare for this country under the import quota using the areas from (e).

(l) Find the difference between consumer surplus in (i) and (f). Are consumers better or worse off under the import quota?

(m) Find the difference between producer surplus in (j) and (g). Are producers better or worse off under the import quota?

(n) Find the difference between total welfare in (k) and (h). Is this country better or worse off under the import quota?

(o) What is the deadweight loss to this country caused by the import quota (in terms of areas)?

(p) What are the differences between the answers to this question and the answers to Question 3?

Do questions 1, 2, and 4.

Reference no: EM131652881

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