Consider the market for coffee in the small, isolated country of Krakozhia. Within Krakozhia, the domestic demand for coffee is: Qd = 500 − 2p and the domestic supply of coffee is: Qs = −150 + 3p (a) Suppose Krakozhia is closed to trade with the rest of the world. Determine the equilibrium price and quantity. (b) Draw a graph showing the domestic supply and demand from (a). Label all axes and curves and mark out intercepts and equilibrium values. Shade and label areas for the consumer and producer surplus. (c) Calculate the consumer, producer, and total surplus. from (a).
Consider the market for coffee in the small, isolated country of Krakozhia. Within Krakozhia, the domestic
Qd = 500 − 2p
and the domestic supply of coffee is:
Qs = −150 + 3p
(a) Suppose Krakozhia is closed to trade with the rest of the world. Determine the
quantity.
(b) Draw a graph showing the domestic supply and demand from (a). Label all axes and
out intercepts and equilibrium values. Shade and label areas for the
(c) Calculate the consumer, producer, and total surplus. from (a).
(d) Suppose Krakozhia is open to trade and the world price is 150. Determine the domestic quantity supplied,
domestic quantity demanded, and the quantity exported.
(e) Draw a graph showing the domestic supply and demand and world price from (d). Label all axes and
curves and mark out intercepts and relevant values. Shade and label areas for the consumer and producer
surplus.
(f) Calculate the consumer, producer, and total surplus from (d). Who is made better off and who is made
worse off by trade?
(g) Suppose Krakozhia is open to trade and the world price is 80. Determine the domestic quantity supplied,
domestic quantity demanded, and the quantity imported.
(h) Draw a graph showing the domestic supply and demand and world price from (g). Label all axes and
curves and mark out intercepts and relevant values. Shade and label areas for the consumer and producer
surplus.
(i) Calculate the consumer, producer, and total surplus from (g). Who is made better off and who is made
worse off by trade?
(j) Continuing on from (g), suppose the Krakozhian government levies a tariff of 20 on each unit of coffee
imported. Determine the domestic quantity supplied, domestic quantity demanded, and the quantity
imported.
(k) Draw a graph showing the domestic supply and demand, world price, and tariff from (j). Label all axes
and curves and mark out intercepts and relevant values. Shade and label areas for the consumer and
producer surplus, government revenue, and
(l) Calculate the consumer and producer surplus, government revenue, total surplus, and deadweight loss
from (j). Compared to free trade, who is made better off and who is made worse off by the tariff?
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