a) Draw a standard S & D graph for a competitive market. It will be the basis for a series of competitive market questions. b) Below, redraw your graph from (a). (It does not need to be a perfect copy. Just make it close.) View your D curve as domestic demand and your S curve as domestic supply. Highlight/shade the equilibrium levels of price, quantity, CS and PS. c) Below, redraw your graph from (a) and view your D and S curves as domestic demand and supply, respectively. Add to this graph a second supply curve SF representing foreign supply into this market. Draw the total supply curve and identify the new competitive equilibrium. Compared to the purely domestic setting in (b): Is the new equilibrium price higher or lower? Is the new equilibrium quantity higher or lower? Is the new level of domestic supply higher or lower?
a) Draw a standard S & D graph for a competitive market. It will be the basis for a series of competitive market questions.
b) Below, redraw your graph from (a). (It does not need to be a perfect copy. Just make it close.) View your D curve as domestic demand and your S curve as domestic supply. Highlight/shade the equilibrium levels of
c) Below, redraw your graph from (a) and view your D and S curves as domestic demand and supply, respectively. Add to this graph a second supply curve SF representing foreign supply into this market. Draw the total supply curve and identify the new competitive equilibrium.
Compared to the purely domestic setting in (b):
Is the new
Is the new
Is the new level of domestic supply higher or lower?
d) Below, redraw your graph from (a). Suppose the government decides to subsidize the suppliers by directly giving producers a payment of s for each unit they produce. Add this subsidy to your graph. Highlight/shade the new equilibrium levels of price, quantity, CS, and PS. Shade any inefficiency area.
e) Below, redraw your graph from (a). Now suppose there’s a 2nd source of demand in the form of a foreign demand curve DF. Add DF to your graph below, determine the new total demand curve, determine the new equilibrium, and show how the new equilibrium quantity is divided between domestic and foreign buyers
Trending now
This is a popular solution!
Step by step
Solved in 4 steps with 3 images
