Scenario 9-1For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 200 - 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P,where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard.Refer to Scenario 9-1. Suppose the world price of cardboard is $45. Then Boxland's gains from international trade in cardboard amount toa. $122.50.b. $102.50.c. $135.00.d. $88.75.

Answered: Scenario 9-1 For a small country called…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Scenario 9-1
For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 200 - 2P, where QD represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is QS = -60 + 3P,
where QS represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard.
Refer to Scenario 9-1. Suppose the world price of cardboard is $45. Then Boxland's gains from international trade in cardboard amount to
a. $122.50.
b. $102.50.
c. $135.00.
d. $88.75.

Expert Solution

Step 1

When there is no-trade, the domestic price will be measured at equilibrium between domestic supply and demand. When the country opens up to trade; world price will be measured at an intersection of the world supply and demand. When the domestic price exceeds the world price, it is an indicator that the country lacks the comparative advantage and therefore imports the product. On the other hand when the world price exceeds the domestic price, it is an indicator that the country has a comparative advantage and should export the product.

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