Levels of production and consumption be under free trade

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Reference no: EM13690365

Suppose that the domestic demand and supply for shoes in a small open economy are given by

P= 100 - 2Q(demand)

a¬ P = 4 + Q(supply)

Where P denotes price and Q denotes quantity.

A. what will the levels of production and consumption be under free trade?

B. Will the country be an exporter or importer if the world price is $50? How much will it want to trade?

C. Suppose that the local government imposes a tax of $5 per unit of the quantity traded of this product. What will happen to the production, consumption, and trade levels of this product?

D. What will the welfare costs of this policy be?

Reference no: EM13690365

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