Suppose you have the following for white t-shirts market: Market demand is P=125-(3/8)Q Market supply is P=5+(1/8)Q. Suppose it is now possible to obtain white t-shirts from the rest of the world at $15 per item at any given quantity. In other words, there is now a global supply that is horizontal at $15. a. Obviously the world price and domestic price will now be $15. Calculate the quantity produced and demanded domestically. Calculate the difference as imports from the rest of the world. b. Calculate the CS (Consumer Surplus) and PS (Producer Surplus) under free trade. Who gains with free trade? Who loses? Hint: Use graphs first.

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