(1) Only elves live inn Rivendell. Elves in Rivendell are expert jewelry makers. In the perfectly competitive market for jewelry in Rivendell, the demand and supply are given by QD = 10- 2P Qs = 5P Jewelry made in Rivendell is also desired by humans who live in the world outside Rivendell. Jewelry can be sold to those humans in a perfectly competitive world market where Pw = 2. Jewelry can be traded within Rivendell and in the world outside. a) What will be the price at which trade of jewelry occurs? What quantity will be sold to elves in Rivendell and what quantity will be exported? [3 marks] b) Calculate the producer surplus and consumer surplus in Rivendell, and illustrate them in a demand and supply graph. [3 mark] c) In 2021, humans are badly affected by Covid, and all of them have to stay at As a result, no human buys any jewelry. Assume no one else outside of Rivendell buys jewelry. Elves are immune to Covid, and hence the demand within Rivendell stays the same as before COVID. What is the competitive equilibrium (PCE, QCE) at Rivendell in 2021? [2 marks] d) To increase the producers' surplus back to the pre-Covid level, Elrond, the King of Rivendell, decides to host regular parties, so the elves have more chance to show off their jewelry. As a result, the demand in Rivendell becomes Qp =10 - 2P+x if Elrond spends x to host the parties. What will be the new equilibrium quantity traded and price? [3 marks] e) As a result of the new demand in part d), what will be the expression for producer surplus at the new equilibrium? [2 marks] f) How much should Elrond spend on the parties, so that the producer surplus in part e) is the same as the pre-Covid level? [4 marks] g) Given the expenditure x you derived in part f), what is the resulting total surplus? Is it higher than the total surplus in the environment of part b)? Explain whether the King's party plan is a good idea [2 marks]