Question

21. Use the following graph to answer the next six questions: (6 points) 22,000 20,000 18,000 16,000 Price 14,000 of 12,000 cars 10,000 (S) 8,000 6,000 4,000 2,000 Domestic supply World price 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? $14,000 ii. If this is a nontrading (closed) economy, how many cars (in thousands) will be bought and sold? Cars sold: 40 thousand ii. If this is a trading (open) economy, what will be the price of a car? In the open economy the car of the price will drop to world price thus the price of the car $10,000 will be . iv. If this is a trading (open) economy, what will be quantity demanded of cars (in thousands)? . The quantity demanded -60 thousand v. If this is a trading (open) economy, what will be the quantity supplied of cars (in thousands) by the domestic producers? . Quantity of supply: 20 thousand vi. How many cars (in thousands) will this country import in a trading (open) economy situation?

Answer 1

(i) Price of the case of this in a non trading economy will be $14000 (ii) How many cars will be bought & sold if this is a non-trading economy is 40,000 cars (iii) If it is a trading economy, the world price will be $10,000. Price will drop from 14,000 to 10,000 (iv) Quantity demanded in case of open economy will be 6000 case (v) Quantity supplied by the domestic supplier at the world price will be 20,000 cars (vi) If the economy is open, then the country should import 40,000 cars (60000 - 20000). Import = Domestic Demand - Domestic supply.