f) Draw a graph of the situation above that is similar to either Figure 8-9 (for a tariff) or Figure 8-11 (for a subsidy). Calculate the consumer and producer gains or losses as well as government revenue or expenditure. Calculate the production and consumption distortions and the terms of trade loss or gain. Use a negative sign to indicate a loss 120 11.75 14.375 38.625 41.25 60 Change in consumer surplus A+B+C+D = 210.65625 [1055! Change in producer surplus A = 5.25 11.75 + 1A 5.25 2.625 = 68.578125 ain QD = 60 - (1/2)P and Qs = (1/2)P - 7 (CANADA) QD = 80 - P and Qs = 2P -3 (Peru) a) Calculate the autarky equilibrium prices and quantities for potatoes in both Canada and Peru. (Do this algebraically not graphically.) Using the two sets of equations above we have For Canada QD = 60 - (1/2)P = (1/2)P - 7 = Qs so that 67 = P and Q = 26 1/2 For Peru QD = 80 - P = 2P - 3 = Qs so that P = 27 2//3 and Q = 52 1/3 Canada's autarky quantity 26 1/2 Peru's autarky quantity 52 1/3 Canada's autarky price 67 Peru's autarky price 27 2/3 b) Which country will export potatoes? Circle either PERU or CANADA.c) Calculate the import demand and export supply curves for potatoes. Indicate which country has the import demand curve and which has the export supply curve. For Peru (which exports potatoes) the export supply curve is given by Qs - QD = 2P - 3 - (80 - P) = 3P - 83 (or P = 27 2/3 +(1/3) QEX) For Canada the import demand curve is given by QD - Qs = 60 - (1/2)P - ((1/2)P - 7) = 67 - P (or P = 67 - QIM) Export supply curve QEX = 3P - 83 or P = 27 2/3 +(1/3)QEX Circle CANADA or PERU Import demand curve QIM = 67 - P or P = 67 - QIM Circle CANADA or PERUd) Calculate the equilibrium trade price and the quantity of potatoes traded. Show your work. Equate the export supply and import demand curves QEX = 3P - 83 = 67 - P = QIM which yields P = 37 1/2 and Q = 29 1/2 Equilibrium Price 37 1/2 Quantity of potatoes traded 29 1/2 Substituting P + t for PD in Canada's import demand curve and setting t = 7 we have QEX = 3P - 83 = 67 - (P + 7) = QIM which yields P = 35 3/4 and Q = 24 1/4 New world price after per unit subsidy or tariff imposed 35 3/4 Quantity of potatoes traded 24 1/4 9