Use diagrams if necessary :)

Suppose the market for chessboards in Australia has Demand given by P = 60 - 5Q and Supply P = 4 + 2Q, where Q is in thousands.

Part A (1 mark)

Find the equilibrium price and quantity, and display the equilibrium graphically.

Part B (2 marks)

The Government believes the price paid for chessboards should be $30. Detail two policies that the Government could use to obtain this price.

Part C (2 marks)

Are either of your policies given in part (B) Pareto efficient? If so, which one(s)? Explain.

Part D (3 marks)

The Prime Minister is instead considering opening the economy to the world market where the price is $40 per chessboard, since he thinks trade can help the economy. However, an economic advisor states that as the country does not have the comparative advantage in making chessboards and the closed market equilibrium is Pareto Efficient, remaining closed is the best achievable outcome for the economy. Whom do you agree with? Justify your answer.

Part E (2 marks)

Suppose that a year later a new large economy begins supplying chessboards to the world at $10 each. Assume they can supply more chessboards than are ever demanded globally. In response to this international price drop, the Prime Minister imposes a $6 tariff to protect domestic producers. Explain why deadweight loss arises under a tariff and calculate the total deadweight loss in this scenario.