Question

21. Use the following graph to answer the next six questions: (6 points) 22,000 20,000 18,000 16,000 Domestic supply Price 14,000- of 12,000 cars 10,000 $) 8,000 6,000 4,000 2,000 World price Domestic demand 10 20 30 40 50 60 70 80 90 100 Quanitity of cars (thousands) i. What is the price of a car if this is a nontrading (closed) economy? ii. If this is a nontrading (closed) economy, how many cars (in thousands) will be bought and sold? ii. If this is a trading (open) economy, what will be the price of a car? iv. If this is a trading (open) economy, what will be quantity demanded of cars (in thousands)? v. If this is a trading (open) economy, what will be the quantity supplied of cars (in thousands) by the domestic producers?

Answer 1

Answer :

1)in the closed economy equilibrium occur when demand curve intersect supply curve.

So Price of car=$14000

2) car sold =40 thousands

3) In open economy car price will drop to world price

So new price=$10000

4) quantity of demanded occur when world price intersect to demand curve.

Quantity of Demanded =60 thousands

5) Quantity of Supply from domestic producers when world price curve intersect supply curve From domestic producers

Quantity of supply=20 thousands