(Scenario: Freedonian Exports) In the small country of Freedonia, the domestic demand for widgets is represented by P = 100 - 3Q; the domestic supply of widgets is represented by P = 1Q. Now suppose that Freedonia engages in international trade in widgets. The world price is $40. How many widgets will be consumed domestically and how many will be exported?
A) It will consume 20 domestically and export 20.
B) It will consume 20 domestically and export 40.
C) It will consume 40 domestically and export 20.
D) It will consume zero domestically and export 20.

Question

Quizplus · Accepted Answer

To find the quantity consumed domestically, we set the world price equal to the domestic demand equation: 40 = 100 - 3Q. Solving for Q gives us Q = 20 for domestic consumption. To find the quantity supplied domestically at the world price, we set the world price equal to the domestic supply equation: 40 = 1Q. This gives us Q = 40 for domestic production. The difference between what is produced domestically (40) and what is consumed domestically (20) is what will be exported, which is 20.

(Scenario: Freedonian Exports) in the Small Country of Freedonia, the Domestic