beginning of the year (when both planting and harvesting costs are part of total opportunity cost), the total amount of bananas planted is given by:

0 ifp$2.50

Q(p)[0,] ifp$2.50

s ifp$2.50

Note that supply can be drawn as a straight horizontal line at a price of $2.50.

Question 1: Draw the supply and demand system and clearly mark the equilibrium outcome. Shade in the area that is the consumer surplus. (5 points)

Question 2: What is the elasticity of demand at the equilibrium price and quantity? Is demand elastic or inelastic? (2 Points)

Question 3: Suppose that there is a very large number of foreign producers in the Philippines who can also produce bananas. In the absence of the import ban, it would be possible to purchase any number of bananas from the Philippines at a price of $2.00. Suppose that the government announces that it will be lifting the import ban on bananas in one year. In this time frame, domestic farmers can save on both the planting and harvesting costs if they choose to not produce. Draw the supply and demand system with international trade. Shade in the consumer surplus. Explain why there will be no domestic production. (5 points)