Question

Scenario 9-1 For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 200 − 2P , where Q D 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 Q S = -60 + 3P , where Q S 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, relative to the no-trade situation, international trade in cardboard a. benefits Boxlandian consumers by $672 and harms Boxlandian producers by $598.50. b. benefits Boxlandian consumers by $721 and harms Boxlandian producers by $598.50. c. harms Boxlandian consumers by $336 and harms Boxlandian producers by $525.00. d. benefits Boxlandian consumers by $721 and harms Boxlandian producers by $525.00.

Answer 1

Answer:  a. benefits Boxlandian consumers by $672 and harms Boxlandian producers by $598.50.

Explanation:

Equilibrium price will be at level where quantity demanded equals quantity supplied.

200 − 2P = -60 + 3P

200+60 = 5P

5P = 260

P = $52

Equilibrium Quantity Demanded = 200 − 2P = 200 - 2 * 52 = 96 units

In a no-trade situation the demand in Boxland is 96 units at a price of $52. If they were to buy at the world price of $45, they would benefit;

= (96 * 52) - (96 * 45)

= 4,992‬ - 4,320‬

= $672

Producers however would produce the following at a price of $45;

Q S = -60 + 3P

= -60 + 3(45)

= 75 units

They would be supplying less units and be hurt.