Note: The answer should be typed.

1. (25 points) The U.S. domestic market for digital watches is perfectly competitive and shown on the graph below. The domestic supply and demand are given by: Qd=1200-30P Qs=20P The world price for digital watches is $15. You may find it helpful, but it is not required, to draw the quantities you calculate for parts a-d on the graph below (not to scale). Price per unit, $ US Demand US Supply World Price Quantity a. (7 points) Find the number of watches imported under free trade in this market. What is the consumer surplus from free trade? b. (7 points) If the US passes a law completely eliminating trade in digital watches (quota=0), find the gains in producer surplus from this policy.c. (6 points) What is the deadweight loss under b? d. (5 points) If, in general, domestic watch firms make negative profits in the short run due to the opening of the market to trade (because prices fall), would you expect US watch imports to increase or decrease as the US market settles into long run equilibrium? Why? Assume that the change in imports won't affect the world price and use a diagram or a clear economic explanation (or both)