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flemingpk flemingpk
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2 weeks ago
The Gains and Losses to an Importing Country

The graph shows the market for Swiss chocolates in New Zealand.
 

Assume that P1=$0.25, P2=$4.25, P3=$9.50, P4=$13.00, Q1=25, Q2=200, and Q3=285. With international trade, what is consumer surplus? What is producer surplus? New Zealand ________ (imports/exports) ________ Swiss chocolates. Please round your answer to two decimal places.

▸ $350.00, $925.00, imports, 175

▸ $1246.88, $50.00, imports, 260

▸ $350.00, $925.00, exports, 175

▸ $1246.88, $50.00, exports, $260
Textbook 

Macroeconomics


Edition: 3rd
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sherbiejr16sherbiejr16
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More solutions for this book are available here
$1246.88, $50.00, imports, 260

With no international trade, equilibrium occurs where supply equals demand, at a quantity of 200 (Q2) and a price of $4.25 (P2).

With international trade, consumers in Switzerland can buy all they want at the world price, so they will buy 285 chocolates (Q3) at a price of $4.25 (P2) (the world price).
Consumer surplus is equal to the area below the demand curve and above the market price.
Consumer surplus = 1/2 * base * height = 1/2 * (Q3 - 0) * (P4 - P2) = 1/2 * 285 * (13.00 - 4.25) = $1246.88

Domestic producers must sell at the world price (because nobody will purchase chocolates at a higher price), so they produce 25 chocolates (Q1) at the world price $4.25.
Producer surplus is equal to the area above the supply curve and below the market price.
Producer surplus = 1/2 * base * height = 1/2 * (Q1 - 0) * (P2 - P1) = 1/2 * 25 * (4.25 - 0.25) = $50.00

Because domestic producers produce less than domestic consumers purchase, New Zealand imports the excess (Q3 - Q1 = 285 - 25 = 260).
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flemingpk Author
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2 weeks ago
You make an excellent tutor!
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Smart ... Thanks!
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2 hours ago
I appreciate what you did here, answered it right Smiling Face with Open Mouth
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