3) Welfare Analysis: Trade (8 points) Finally, instead of imagining a price ceiling of $6, let's suppose that this is a tiny country that opens up to trade, and the world price is $6 per widget. Assume that this country is a small enough part of the world market that its decision to open up to trade does not impact the world price. a. What is the domestic equilibrium price and Supply and Demand for Widgets quantity of widgets under autarky? Price P* = $_ $22 $20 Q* = widgets $18 b. Draw the world price on the graph and $16 clearly label the domestic quantities $14 supplied and demanded with trade. $12 Quantity supplied: widgets $10 $8 Quantity demanded: widgets $6 C. Will this country be a net-exporter or net- $4 importer of widgets, and how many widgets $2 will be imported or exported? 20 40 60 80 100 120 140 Quantity Spring LUZJ d. On the graph, clearly label the areas representing consumer and producer surplus with trade. Then complete the table below by calculating each. Once again, you can copy the equilibrium values from Problem 1. In the "change" column, note whether each has increased, decreased, or stayed the same. Autarky With Trade Change Consumer Surplus Producer Surplus Total Surplus e. Summarize what happened to surplus when the country opened up to trade. Who benefited, and who was hurt by the policy? f. Did opening up to trade cause deadweight loss (DWL)? If so, find its value by calculating the change in total surplus. g. Briefly describe the tradeoff the government is weighing when it opens up to trade. What are the benefits, and what are the downsides? Bonus: What parallels / themes did you notice while working through these three problems