Question

The nation of Acirema is “small” and unable to affect world prices. It imports peanuts at the price of $10 per bag. The demand curve & supply curves are

D= 400-10P

S=50+5P

Using Excel, develop columns of P ranging from $5.00 to $20.00 increment of $0.50, Demand (D) & Supply (S), and Import Demand (MD). (Note: When you need to round the digits, round your answers to the nearest hundredth unless otherwise noted.)

Answer the following questions:

What is the value of MD when p=$10? _______ Blank 1

What is the value of MD when p=$13? _______ Blank 2

What is the value of MD when p=$16? _______ Blank 3

What is the free trade equilibrium price? _______ Blank 4

What is the free trade equilibrium quantity? _______ Blank 5

At the free trade equilibrium, what is the quantity produced by domestic producers? _______ Blank 6

Now, calculate and graph the following effects of an import quota that limits imports to 50 bags.

What is the equilibrium price under the import quota? _______ Blank 7

What is the equilibrium quantity under the import quota? _______ Blank 8

What is the quota rents? _______ Blank 9

How much is the consumption distortion loss? _______ Blank 10

How much is the production distortion loss? _______ Blank 11

Answer 1

(Parts 1 - 6)

MD = D - S

P ($)	D	S	MD
5	350	75	275
5.5	345	77.50	267.50
6	340	80.00	260.00
6.5	335	82.50	252.50
7	330	85.00	245.00
7.5	325	87.50	237.50
8	320	90.00	230.00
8.5	315	92.50	222.50
9	310	95.00	215.00
9.5	305	97.50	207.50
10	300	100.00	200.00
10.5	295	102.50	192.50
11	290	105.00	185.00
11.5	285	107.50	177.50
12	280	110.00	170.00
12.5	275	112.50	162.50
13	270	115.00	155.00
13.5	265	117.50	147.50
14	260	120.00	140.00
14.5	255	122.50	132.50
15	250	125.00	125.00
15.5	245	127.50	117.50
16	240	130.00	110.00
16.5	235	132.50	102.50
17	230	135.00	95.00
17.5	225	137.50	87.50
18	220	140.00	80.00
18.5	215	142.50	72.50
19	210	145.00	65.00
19.5	205	147.50	57.50
20	200	150.00	50.00

(1) When P = 10, MD = 200

(2) When p = 13, MD = 155

(3) When p = 16, MD = 110

(4) Free trade equilibrium price = World price = $10

(5) When P = $10, Equilibrium quantity = Domestic demand = 300

(6) In free trade equilibrium with P = $10, Quantity produced by domestic producers = 100

NOTE: As per HOMEWORKLIB POLICY, 1st 6 parts are answered.