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Consider the small closed economy of Islandia and its market for bananas. Currently, the domestic demand and supply curves for bananas are given by the following equations:
Domestic Demand: P = 1000 - (1/5)Q
Domestic Supply: P = 200 + (1/15)Q
Furthermore, you know that the world price of bananas is equal to $300 per unit of bananas. Hint: you will likely find it helpful to draw a sketch or several sketches as you proceed with this problem.
a. If Islandia remains a closed economy, what will be the equilibrium price and quantity in the market for bananas in this economy?
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