Scenario 9-1

For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 210 − 2P, where Q D represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is Q S = -90 + 3P, where Q S represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard.
-Refer to Scenario 9-1. Suppose the world price of cardboard is $82.5. Then Boxland's gains from international trade in cardboard amount to

Question

Scenario 9-1
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For a small country called Boxland, the equation of the domestic demand curve for cardboard is Q D = 210 − 2P, where Q D represents the domestic quantity of cardboard demanded, in tons, and P represents the price of a ton of cardboard. For Boxland, the equation of the domestic supply curve for cardboard is Q S = -90 + 3P, where Q S represents the domestic quantity of cardboard supplied, in tons, and P again represents the price of a ton of cardboard.
-Refer to Scenario 9-1. Suppose the world price of cardboard is $82.5. Then Boxland's gains from international trade in cardboard amount to

Quizplus · Accepted Answer

To find Boxland's gains from international trade in cardboard, we first determine the domestic equilibrium price and quantity without international trade. Setting the domestic demand equal to the domestic supply:210 - 2P = -90 + 3PSolving for P gives us the domestic equilibrium price. Rearranging the equation:5P = 300P = 60Substituting P = 60 into either the demand or supply equation gives us the equilibrium quantity:Q = 210 - 2(60) = 210 - 120 = 90With international trade at a world price of $82.5, the quantity demanded in Boxland would be:QD = 210 - 2(82.5) = 210 - 165 = 45The quantity supplied in Boxland would be:QS = -90 + 3(82.5) = -90 + 247.5 = 157.5Boxland would import the difference between quantity demanded and quantity supplied at the world price, which is 157.5 - 45 = 112.5 tons.The gains from trade can be calculated as the area of the triangle that forms between the price before trade, the price after trade, and the quantity imported. The height of the triangle is the difference between the domestic price and the world price (82.5 - 60 = 22.5), and the base of the triangle is the quantity imported (112.5). The area of a triangle is 1/2 * base * height, so:Gains from trade = 1/2 * 112.5 * 22.5 = 1265.625Therefore, Boxland's gains from international trade in cardboard amount to $1,265.63.

Scenario 9-1 ​

Scenario 9-1