Question

For a small country called Boxland, the equation of the domestic demand curve for
cardboard is

,Qd=200-2P

where represents the domestic quantity of cardboard demanded, in tons, and
represents the price of a ton of cardboard.

• For Boxland, the equation of the domestic supply curve for cardboard is

,Qs=-60+3P

where represents the domestic quantity of cardboard supplied, in tons, and again
represents the price of a ton of cardboard.

10. Refer to Scenario 9-2. Suppose the world price of cardboard is $45. Then, relative to the no-trade situation, international trade in cardboard

a.

harms Boxlandian consumers by $336 and harms Boxlandian producers by $525.00.

b.

benefits Boxlandian consumers by $721 and harms Boxlandian producers by $525.00.

c.

benefits Boxlandian consumers by $672 and harms Boxlandian producers by $598.50.

d.

benefits Boxlandian consumers by $721 and harms Boxlandian producers by $598.50

Answer 1

Answer:

Check the explanation

Explanation:

Demand curve for cardboard is -

Qd = 200 - 2P

Supply curve of cardboard is -

Qs = -60 + 3P

If Boxland prohbits international trade then market for cardboard boxes in Boxland will be in equilibrium when,

Qd = Qs

200 - 2P = -60 + 3P

5P = 260

P = 52

Equilibrium price (without international trade) = $52 per ton of cardboard

Quantity demanded (at equilibrium price) = 200 - 2P = 200 - 2*52 = 200 - 104 = 96 tons

Quantity supplied (at equilibrium price) = -60 + 3P = -60 + 3*52 = -60 + 156 = 96 tons

So, without engaging in international trade -

Domestic consumers are demanding 96 tons of cardboard at $52 per ton of cardboard.

Domestic suppliers are supplying 96 tons of cardboard at $52 per ton of cardboard.

Now, if Boxland engages in international trade then being a small country it have to accept the world price.

World price = $45 per ton of cardboard

Quantity demanded (at world price) = 200 - 2P = 200 - 2*45 = 200 - 90 = 110 tons

Quantity supplied (at world price) = -60 + 3P = -60 + 3*45 = -60 + 135 = 75 tons

So, after engaging in international trade -

Domestic consumers are demanding 110 tons of cardboard at $45 per ton of cardboard.

Domestic suppliers are supplying 75 tons of cardboard at $45 per ton of cardboard.

Thus, it can be seen that as Boxland enters into the international trade, domestic consumers are not only paying less but are also consuming more.

On the other hand, domestic suppliers are not only selling at less but are also supplying less as well.

Thus, domestic producers of cardboard boxes become worse-off and domestic consumers of cardboard boxes become better-off.