Country A has a competitive domestic market of charcoal. The demand and supply of the domestic market are given by QD = 16 4P QS = 4P Country A has access to the international market, in which the charcoal price is Pw = 3. The domestic market is small and cannot influence the international price.

a) What will be the price at which charcoal is traded in the domestic market? What will be the quantity produced in country A and what quantity will be exported/imported?

b) Calculate the producer surplus and consumer surplus in country A, and illustrate them in a demand and supply graph.

c) Suppose charcoals price increases to PW=4 in the international market. What are the quantity demanded and the quantity produced in country A? What quantity does country A export/import?

d) How does the price increase (from Pw =3 to Pw =4) change the consumer surplus and producer surplus in country A? Explain the changes in no more than 2 sentences.

e) When Pw =4, the government in country A decides to subsidize the domestic consumers x dollars for every unit they purchase. Suppose the government wants to achieve the same consumer surplus as when Pw =3. Calculate how much x must be to accomplish this. What is the export/import quantity given such a subsidy?