Essentials of Economics 7th Edition by Gregory Mankiw

Exercise 4

Kawmin is a small country that produces and consumes jelly beans. The world price of jelly beans is $1 per bag, and Kawmin's domestic demand and supply for jelly beans are governed by the following equations:

where P is in dollars per bag and Q is in bags of jelly beans.
a. Draw a well-labeled graph of the situation in Kawmin if the nation does not allow trade. Calculate the following (recalling that the area of a triangle is

the equilibrium price and quantity, consumer surplus, producer surplus, and total surplus.
b. Kawmin then opens the market to trade. Draw another graph to describe the new situation in the jelly bean market. Calculate the equilibrium price, quantities of consumption and production, imports, consumer surplus, producer surplus, and total surplus.
c. After awhile, the Czar of Kawmin responds to the pleas of jelly bean producers by placing a $1 per bag tariff on jelly bean imports. On a graph, show the effects of this tariff. Calculate the equilibrium price, quantities of consumption and production, imports, consumer surplus, producer surplus, government revenue, and total surplus.
d. What are the gains from opening up trade? What are the deadweight losses from restricting trade with the tariff? Give numerical answers.