The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
FIGURE 32-5
-Refer to Figure 32-5.If Paperland engages in international trade and the world price is PC,the amount of newsprint produced by Paperland will be

Question

The diagram below shows the domestic demand and supply curves in the market for newsprint in Paperland.
  FIGURE 32-5
-Refer to Figure 32-5.If Paperland engages in international trade and the world price is PC,the amount of newsprint produced by Paperland will be

Quizplus · Accepted Answer

If the world price is PC, which is higher than the domestic equilibrium price OP, Paperland will have an incentive to export newsprint. As a result, the quantity produced will increase to Q2, which is greater than the domestic demand at price OP. The supply surplus will be exported, and the quantity imported will be equal to the difference between Q2 and Q1. Q2 is the point where the world price PC intersects the domestic supply curve, and Q1 is the point where the world price PC intersects the domestic demand curve.

The Diagram Below Shows the Domestic Demand and Supply Curves