Question

3. [20 pts] Suppose the market demand and supply curves for wheat produced by a perfectly

competitive industry in Canada are given by:

Q_D = 500 − 5P QS = 100 + 5P

(a) [5 pts] What is the market equilibrium price and quantity?

(b) [5 pts] If the world price for wheat is $50, what is the associated quantity supplied and

quantity demanded? Would Canada participate in international trade? If so, is Canada

an exporter or importer, and what quantity is traded?

(c) [10 pts] What is consumer surplus with no trade? How does consumer surplus change

under trade? What is producer surplus with no trade? How does producer surplus

change under trade? How does total welfare change when this economy decides to

trade?

Answer 1