Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Suppose we are thinking about the market for coffee beans. You live in a small, closed economy where coffee is grown domestically and then sold
Suppose we are thinking about the market for coffee beans. You live in a small, closed economy where coffee is grown domestically and then sold to consumers. The domestic supply curve for coffee is given by: Qs = 2p - 4 Similarly, the domestic demand for coffee is given by: QD = 21 - SP 11. Solve for the market equilibrium price level (p*) and quantity sold (Q*). Show your work. [2 points] Suppose now that we enter the world market, and become a small, open economy, and begin engaging in international trade. We also observe that the world price of coffee is currently set at $6. 12. How much coffee is therefore imported or exported? Show your work. [2 points] 13. Show graphically the (i) consumer surplus, and (ii) producer surplus under both autarky and with international trade. Has total surplus increased with trade in this example? [3 points] Suppose now that the local government imposes a $2 tariff on coffee imports in order to protect local coffee producers. 14. Calculate the (i) loss in Consumer Surplus and (ii) the gain in domestic Producer Surplus resulting from this tariff. Show your work. [2 points] 15. How much revenue does this tariff generate? Show your work. [1 point]
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started