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A particular commodity is traded in a highly competitive world market, and the world price is $30. Unlimited quantities are available for import to the United States at this price. The supply from U.S. domestic producers and U.S. demand for this product can be given by the following functions, respectively:
QD = 200 - 4P (U.S. Demand)
QS = - 40 + 2P (U.S. Supply)
P is the domestic price and Q is domestic production.
(a) Graph the above equations, and the information.
(b) If the U.S. prohibits the importation of this product, what are the equilibrium price and quantity? Calculate (i) consumers' surplus, (ii) producers' surplus, (iii) government cost/revenue and (iv) deadweight loss under autarky.
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