The demand for shoes in a country is given by D = 60 - 0.5P,where P is the price of a pair of shoes.Supply by domestic producers is given by S = 20 + 0.5P.The world price of a pair of shoes equals $30.In equilibrium,when this economy is closed to trade,domestic shoe production equals ________,and when this economy opens to trade,domestic shoe production equals ________.

Question

Quizplus · Accepted Answer

In a closed economy, set D = S: 60 - 0.5P = 20 + 0.5P, solving gives P = 40, and domestic production is 40. When open to trade, P = 30 (world price), so S = 20 + 0.5(30) = 35.

The Demand for Shoes in a Country Is Given by D