Question

Consider the daily market for bananas in Australia:

Demand: P = 100 – 5Q^d

Supply: P = 10 + 10Q^s

where quantity (Q) is measured in 1000 tons (for example, Q = 2 means Q = 2K tons, where K stands for 1000) and price (P) is price per ton, and the superscripts d and s stand for ‘demand’ and ‘supply’ respectively.

The Equilibrium Price =     _____________

The Equilibrium Quantity = ___________

In the problem above, Australian government does not permit the importation of foreign grown bananas. Now assume Australia can import all the bananas it wants at the world price of $40 per ton (and subsequently, the price of bananas in Australia drops to $40/ton).

At $40/ton, Australia imports _________ tons of bananas.

The policy of opening up the country to trade yields a net benefit or cost to Australia? ____________

The net cost or benefit to Australia of allowing the importation of bananas is ___________, assuming no externalities in the banana industry.

Answer 1