Canada's supply and demand curve for beer is, Qs = p 2, Qd = 25 2p

(a) Solve for price, quantity, producer surplus and consumer surplus without trade.

(b) Assume that Canada is a small country in the world and the world price is $5. What would be the consumer and producer surplus in Canada under free trade.

(c) Now say that Canadian beer producers are upset by free trade and demand either a tariff of $1 or a price support from the government of $1 for every unit of output they produce. Evaluate the welfare effects of these two policies. Which would you prefer as the Canadian beer industry? Which would you prefer if you were a heavy beer drinker?

(d) Now assume that Canada decides not to trade with the world, but instead signs an exclusive free trade agreement (for beer) with the US. The supply and demand for beer in the US is Qs = 2p, Qd = 10 p. Solve for the equilibrium quantity, price, consumer surplus and producer surplus in Canada and the US that would result from this trade agreement.

(e) Do these models accurately represent trade in beer between countries? Why or why not?