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Consider the market for widgets in Westonia, a small closed economy whose domestic demand and supply curves for widgets are described by the following equations:
Consider the market for widgets in Westonia, a small closed economy whose domestic demand and supply curves for widgets are described by the following equations:
Domestic Demand: P = 10 Q
Domestic Supply: P = 2 + (1/3)Q
where P is the price per unit of widgets and Q is units of widgets. You are also told that the world price of widgets is $3 per unit of widgets.
a. Suppose that Westonia opens the widget market to trade. Will Westonia import or export widgets? Fully explain your answer.
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