1. The graph on the right shows the annual demand curve for T-shirts. P (S) a. Assume the price of a T-shirt is $14 in 16 Year 1. 15 14 (i) How many T-shirts are 13 demanded? 12 (ii) How much do consumers spend 11 on T-shirts? (Give a $ value.) 10 (iii) How much consumer surplus is generated? (Give a $ value.) b. Assume the price of a T-shirt falls to $10 in Year 2. (i) How much does the quantity demanded change relative to Year 1? (ii) How much does consumer expenditure on T-shirts change T 9 11 13 Q relative to Year 1? (Give a $ 8 10 12 14 [Millions) value.) (iii) How much does consumer surplus change relative to Year 1? (Give a $ value.)2. The graph on the right shows the annual supply curve for T-shirts. P (5) a. Assume the price of a T-shirt is $4 in Year 1. 16 (i How many T-shirts are supplied? 15 (ii) What is the cost of producing the 14 13 T-shirts? (Give a $ value. Ignore 12 any fixed costs.) 11 (iii) How much producer surplus is 10 generated? (Give a $ value.) b. Assume the price of a T-shirt rises to $10 in Year 2. (i) How much does the quantity supplied change relative to Year 1? (ii) How much does the cost of producing the T-shirts change relative to Year 1? (Give a $ 7 11 13 Q value.) 8 10 12 14 (Millions) (iii) How much does producer surplus change relative to Year 1? (Give a $ value.) 3. Now, combine the demand and supply curves in questions I and 2. (i) What is the market equilibrium price? (ii) What is the market equilibrium quantity? (iii) What is the total surplus generated in the T-shirt market? (Give a $ value.)Country A ROW P 3 D V D II] II] 13 D 32 I 0 12 D 30 2 I 1| 0 23 3 2 10 0 lb 4 3 '31 D 24 S 4 E J 22 b S l' 2 20 T b b 3 13 Ft 1" S 4 1b '3' Ft 4 S 14 11:! '31 3 b 12 ll 10 2 3' 10 ll ll I ti ti 13 12 II] t) b 14 13 Cl la 4 15 14 {I ll 3 1b 15 ill 12 D Two countries produce and consume T-shirts: Country A and the ROW. Problems 4-5 are based on the supply and demand schedules for the two countries given above. The supply and demand curves are straight lines. Quantities are in millions ofT-shirts. This problem asks you to characterize the equilibrium under autarky and with trade. a. b. Draw the supply and demand curves for Country A's domestic market under autarky (no trade}. Note the equilibrium pliee and quantity. Draw the supply and demand curves for the ROW's domestic market under autarky {no trade]. Note the equilibrium pliee and quantity. Suppose that the two countries open to trade. Describe an arbitrage strategy that will allow you to prot from the price difference between the two markets. Be sure to explain how it will work. Draw the import demand and export supply Jnetions making sure to identity the P-intereepts. Note the equilibrium traded quantity [imports = exports) and the equilibrium world price. How much is produced (supplied) in Country A after trade is opened? How much is consumed [demanded]? This problem asks you to examine the welfare effects ot'opening trade between the two countries. Please draw new graphs (separate from question 1}. a. b. Label the area in your graph that represents consumer surplus in Country A before trade. 1What is the S value of consumer surplus? Label the area in your graph that represents producer surplus in Country A before trade. What is the S value of producer surplus? Label the area in your graph that represents consumer surplus in Country A after the opening of trade with the ROW. What is the $ value ot'consumer surplus? Label the area in your graph that represents producer surplus in Country A alter the opening of trade with the ROW. What is the $ value ofproducer surplus? How much does Country A gain or lose from trade? Country A consumers? Country A producers? Give 5 values