homework2fall2007

homework2fall2007 - Economics 102 Fall 2007 Homework 2...

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Economics 102 Fall 2007 Homework 2 Problem 1: In Schulzland, a small closed economy, the supply and demand for bushels of peanuts are given by D: P = 200 – 5Q and S: P = 40 + 3Q. The world price of peanuts is $70 per bushel. a) Find the equilibrium price and quantity when the economy is closed. b) Graph the domestic supply and demand curves for peanuts in Schulzland. Calculate the total consumer and producer surplus in the domestic market and label the appropriate areas on the graph. c) Now Schulzland opens to trade. Find the quantity demanded and supplied domestically. What is the total quantity of imports? d) Graph the newly opened economy by adding the world price to the domestic supply and demand curves. Calculate the total consumer and producer surplus under free trade and label the appropriate areas on the graph. e) Domestic peanut producers, upset by the new trade policy, lobby President Charles to protect their industry by imposing a tariff of $15 per imported bushel of peanuts. Find
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homework2fall2007 - Economics 102 Fall 2007 Homework 2...

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