Question

The demand and supply functions of the food grains in a small country – Sierra Leone - are as follows:

QD = 380 – 3P

QS = 20 + 2P

where QD and QS are in millions of tons and P is the price per ton.

a. Compute the equilibrium price and quantity in autarky (i.e., no free trade).

b. Compute the consumer and producer surplus in autarky.

c. Compute the consumer and producer surplus when the world price is $50 (i.e., under free trade).

d. What is the net national welfare (gain or loss) for Sierra Leone?

Answer 1