Short Answer

Scenario I

Suppose the domestic supply (QS) and demand (QD) for MP3 players in the United States is represented by the following set of equations:

QS= -25 + 10P (supply)

QD= 875 - 5P (demand)

Refer to Scenario I. If the United States engages in free trade and the international price of MP3 players is $80, then compute the following:

(a) Compute the equilibrium price and quantity (without international trade).

(b) Compute the quantity demanded and quantity supplied when the price changes from the equilibrium price to a new price of $80.

(c) Will this country export or import when the price changes to $80? Show your work.

(d) Compute the change in both the consumer and producer surplus when the price changes from the equilibrium price to $80.

(e) Compute the net national welfare.