Question

Table 7.1.1 Glazeland's Doughnut Market Glazeland's Supply (millions) Price (dollars per doughnut) 0.20 0.30 0.40 0.50 0.60 0.70 2 3 4 5 6 Glazeland's Demand (millions) 10 8 6 4 2 0 29) Table 7.1.1 shows Glazeland's doughnut market before international trade. Glazeland opens up to international trade. If the world price is $0.40 a doughnut then Glazeland will produce doughnuts and will doughnuts. A) 6 million; export 3 million B) 3 million; export 3 million C) 4 million; import 1 million D) 3 million; import 3 million E) 4 million; export 1 million

Answer 1

Answer: D) 3 million ; import 3 million.

If the world price is $0.40 a doughnut, then Glazeland will produce 3 million doughnuts and will import 3 million doughnuts.

From the table, we see that, in Glazeland's doughnut market, the equilibrium attains at the price of $0.50 per doughnut because at this price both the quantity demanded and quantity supplied of doughnut is 4 millions. In the world market, the price of doughnut is $0.40. So, Glazeland will import doughnut because in world market, the price of doughnut is lower than the price in Glazeland. Now, from the table, we see that, at the price of $0.40, the quantity of doughnut sold in Glazeland is 3 millions, i.e., Glazeland produces 3 millions of doughnuts, but quantity demanded of doughnut is 6 millions.

$\therefore$ The amount of doughnut, Glazeland will import = 6 millions - 3 millions = 3 millions

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