Question 3 (30 %)

In the small economy Netherlands, the market for tooth pickers is described by the following demand and supply functions:

Demand: P = 130 - 2X Supply: P = 10 + 2X where P is price and X is quantity.

(a) Calculate the equilibrium price and quantity. Draw the market equilibrium.

(b) Calculate the consumer surplus, producer surplus and the social surplus (welfare) in this market.

(c) Assume that Netherlands opens up to international trade, and that the world price on tooth pickers is PW = 8. Calculate Netherlands export of tooth pickers.

(d) Who will win and who will lose in the Netherlands as a result of the free trade situation?

(e) Calculate the consumer surplus, producer surplus and social surplus after international trade