Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN: 9781285165912
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Consider a small (home) country with the following inverse demand of: P = 200 − 3QD and inverse supply
of: P = 20 + QS for a barrel of oil. The world demand is perfectly horizontal with a
Solve the following for the home country:
A) Calculate the
B) Calculate the
Now, suppose the home country opens up to free trade.
C) Calculate the quantity supplied, quantity demanded, export quantity, and price
D) Calculate the consumer surplus, producer surplus, and total surplus
Now, suppose the home country is open to free trade and provides an export subsidy of $15 per barrel of oil.
E) Calculate the equilibrium price and quantity
F) Calculate the consumer surplus, producer surplus, tax revenue, and total surplus
G) Explain how the three outcomes: no trade, free trade, and trade with an export tariff, affect the home
country (consumers, producers, and overall welfare)
H) What changes if the home country replaces the export subsidy with a subsidy on all domestic production?
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