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For a small country called Treetopia, the equation of the domestic demand curve for paper is QD = 210 − 2P, where QD represents the domestic quantity of paper demanded, in tons, and P represents the price of a ton of paper. For Treetopia, the equation of the domestic supply curve for paper is QS = –90 + 3P, where QS represents the domestic quantity of paper supplied, in tons, and P again represents the price of a ton of paper.Refer to Scenario 9-1. Suppose the world price of paper is $45. Then, relative to the no-trade situation, international trade in paperGroup of answer choicesbenefits Treetopian consumers by $1,575.00 and harms Treetopian producers by $1,518.75.benefits Treetopian consumers by $1,575.00 and harms Treetopian producers by $1,012.50.benefits Treetopian consumers by $2,362.50 and harms Treetopian producers by $1,012.50.benefits Treetopian consumers by $2,362.50 and harms Treetopian producers by $1,518.75.

Question

For a small country called Treetopia, the equation of the domestic demand curve for paper is QD = 210 − 2P, where QD represents the domestic quantity of paper demanded, in tons, and P represents the price of a ton of paper. For Treetopia, the equation of the domestic supply curve for paper is QS = –90 + 3P, where QS represents the domestic quantity of paper supplied, in tons, and P again represents the price of a ton of paper.Refer to Scenario 9-1. Suppose the world price of paper is 45.Then,relativetotheno−tradesituation,internationaltradeinpaperGroupofanswerchoicesbenefits Treetopianconsumersby45. Then, relative to the no-trade situation, international trade in paperGroup of answer choicesbenefits Treetopian consumers by 1,575.00 and harms Treetopian producers by 1,518.75.benefitsTreetopian consumersby1,518.75.benefits Treetopian consumers by 1,575.00 and harms Treetopian producers by 1,012.50.benefits Treetopian consumersby1,012.50.benefits Treetopian consumers by 2,362.50 and harms Treetopian producers by 1,012.50.benefits Treetopian consumersby1,012.50.benefits Treetopian consumers by 2,362.50 and harms Treetopian producers by $1,518.75.

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Solution 1

To answer this question, we first need to find out the quantity demanded and supplied at the world price of $45.

  1. Substitute P = 45 into the demand and supply equations:

    QD = 210 - 245 = 210 - 90 = 120 tons QS = -90 + 345 = -90 + 135 = 45 tons

  2. Calculate the consumer and producer surplus in the no-trade situation:

    Consumer surplus is the area of the triangle above the price line and below the demand curve. It is given by the formula 0.5baseheight. Here, the base is the quantity demanded (120 tons) and the height is the difference between the maximum price consumers are willing to pay (when QD = 0, P = 105) and the actual price (45). So, the consumer surplus is 0.5120(105-45) = $3,600.

    Producer surplus is the area of the triangle below the price line and above the supply curve. It is given by the formula 0.5baseheight. Here, the base is the quantity supplied (45 tons) and the height is the difference between the actual price (45) and the minimum price producers are willing to accept (when QS = 0, P = 30). So, the producer surplus is 0.545(45-30) = $337.5.

  3. Calculate the consumer and producer surplus in the trade situation:

    With trade, the quantity demanded is still 120 tons, but the quantity supplied is now the world supply, which is greater than 45 tons. So, the price drops, which increases the consumer surplus and decreases the producer surplus.

    The new consumer surplus is 0.5120(105-45) = $3,600, which is the same as before.

    The new producer surplus is 0.545(45-30) = $337.5, which is also the same as before.

  4. Compare the surpluses:

    The change in consumer surplus is 3,600−3,600 - 3,600 = 0.Thechangeinproducersurplusis0. The change in producer surplus is 337.5 - 337.5=337.5 = 0.

So, the answer is that international trade in paper does not benefit or harm Treetopian consumers or producers. This is not one of the given answer choices, so there may be a mistake in the question or in my calculations.

This problem has been solved

Solution 2

To answer this question, we first need to find out the domestic quantity demanded and supplied at the world price of $45.

  1. Substitute P = 45 into the demand and supply equations:

    QD = 210 - 245 = 210 - 90 = 120 tons QS = -90 + 345 = -90 + 135 = 45 tons

  2. Calculate the consumer and producer surplus in the no-trade situation:

    Consumer surplus is the area of the triangle between the price axis, the price line, and the demand curve. It is given by the formula 0.5 * base * height. Here, the base is QD = 120 tons and the height is (210 - 2*45) = 120.So,theconsumersurplusis0.5∗120∗120=120. So, the consumer surplus is 0.5 * 120 * 120 = 7200.

    Producer surplus is the area of the triangle between the price axis, the price line, and the supply curve. It is given by the formula 0.5 * base * height. Here, the base is QS = 45 tons and the height is (45 - (-90)) = 135.So,theproducersurplusis0.5∗45∗135=135. So, the producer surplus is 0.5 * 45 * 135 = 3037.5.

  3. Calculate the consumer and producer surplus in the trade situation:

    With trade, the price is $45, so the new quantity demanded is QD = 210 - 2*45 = 120 tons and the new quantity supplied is

This problem has been solved

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