Answer to Question #289113 in Microeconomics for Ale

Question

The demand and supply for chocolates in country A is given by P=B00-0 and PO respectively Country A, a small economy is in autarky.(5) a) Suppose country A opens up to international trade If the world price for chocolates is $200, calculate equilibrium price and equilibrium quantity. b) Graphically show the change in consumer and producer surplus when country A opens to trade

Answer 1

a) If country A opens up to international trade, and the world price for chocolates is $200, which is below the national price, then both equilibrium price and equilibrium quantity will increase. b) Consumer surplus will increase and producer surplus will decrease, when country A opens to trade.