Answered: The following problem analyzes the…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Related questions

Question

(ALL CREDIT GOES TO CENGAGE)

The following problem analyzes the Zambian market for pears.

The graph below shows the domestic supply and demand curves for pears in Zambia. Assume that Zambia's government does not currently permit international trade in pears.

Use the black point (plus symbol) to denote the equilibrium price of one ton of pears and the equilibrium quantity of pears in Zambia without international trade. Next, use the green triangle (triangle symbol) to shade in the area that represents consumer surplus in equilibrium. Finally, use the purple triangle (diamond symbol) to shade in the area that represents producer surplus in equilibrium.

(image below)

Based on the information from the previous graph, absent international trade total surplus is _________.

The following graph shows the same domestic supply and demand curves for pears in Zambia. Now, suppose that the Zambian government changes its stance on international trade, deciding to allow free trade in pears. The horizontal black line (PW��) represents the world price of pears at $350 per ton. Assume that Zambia's entry into the world market for pears has no effect on the world price and there are no transportation or transaction costs associated with international trade in pears. Also assume that domestic suppliers will satisfy domestic demand as much as possible before any exporting or importing takes place.

Use the green triangle (triangle symbol) to shade in the area representing consumer surplus, and then use the purple triangle (diamond symbol) to shade in the area representing producer surplus.

(image below)

When Zambia adjusts its trade policy to allow free trade of pears, the price of one ton of pears in Zambia becomes $350. At this price, ________ tons of pears will be demanded in Zambia, and ________ tons will be supplied by domestic suppliers. Therefore, Zambia will export ________ tons of pears.

Using the information from the previous tasks, complete the following table to analyze the welfare effect of allowing free trade.

---	With Free Trade (Dollars)	Without Free Trade (Dollars)
Consumers Surplus	???	???
Producer Surplus	???	???

When Zambia allows free trade, the country's producer surplus ______ by $_______, and consumer surplus ______ by $______. Therefore, the net effect of allowing international trade on Zambia's total surplus is a _____ of $__.

410 Domestic Demand
350
Pw
330
310
X
290
270
250
0 35 70 105 140 175 210 245 280 315 350
QUANTITY (Tons of pears)
PRICE (Dollars per ton)
390
370
230
Domestic Supply
210
Consumer Surplus
Producer Surplus
(?)

410 Domestic Demand
350
330
310
X
290
270
105
PRICE (Dollars per ton)
390
370
250
230
210
។
Domestic Supply
0 35 70
140 175 210 245
QUANTITY (Tons of pears)
280
315 350
Equilibrium without Trade
Consumer Surplus
Producer Surplus
?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 4 steps with 7 images

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.

Similar questions