3.4 Does joining international trade lead to a shortage or surplus of supply? What is the amount? 3.5 Calculate the change in consumer surplus (ACS), change in producer surplus (APS), and change in total surplus (ATS). Who are the winners and who are the losers from this situation?

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Chapter9: Application: International Trade
Section: Chapter Questions
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Please answer only question 3.4 and 3.5

3. Question 3
A country, called 'Bikyland', does not allow for international trade. Bikyland produces motorbikes
for her own consumption. At the equilibrium without international trade, the domestic price (Pdom)
is $2000 per motorbike and the quantity (Qdom) is 5 million motorbikes.
Then, Bikyland opens up her motorbike market for trade and finds that the world price (Pw) is
$2500 per motorbike. Domestic supply (Qsdom) rises to 6 million and domestic demand (QDdom)
falls to 4 million motorbikes.
3.1 Draw a graph of the motorbike market with SC, DC, Pdom Qdom Pw, Qsdom and Qpdom-
Your graph should show all the numbers.
3.2 At the equilibrium without trade, calculate the revenue that producers/suppliers receive.
3.3 What is the domestic price of motorbikes after international trade is allowed?
Will Bikyland become an importer or an exporter? Give a reason for your answer.
3.4 Does joining international trade lead to a shortage or surplus of supply? What is the amount?
3.5 Calculate the change in consumer surplus (ACS), change in producer surplus (APS), and change in
total surplus (ATS). Who are the winners and who are the losers from this situation?
Transcribed Image Text:3. Question 3 A country, called 'Bikyland', does not allow for international trade. Bikyland produces motorbikes for her own consumption. At the equilibrium without international trade, the domestic price (Pdom) is $2000 per motorbike and the quantity (Qdom) is 5 million motorbikes. Then, Bikyland opens up her motorbike market for trade and finds that the world price (Pw) is $2500 per motorbike. Domestic supply (Qsdom) rises to 6 million and domestic demand (QDdom) falls to 4 million motorbikes. 3.1 Draw a graph of the motorbike market with SC, DC, Pdom Qdom Pw, Qsdom and Qpdom- Your graph should show all the numbers. 3.2 At the equilibrium without trade, calculate the revenue that producers/suppliers receive. 3.3 What is the domestic price of motorbikes after international trade is allowed? Will Bikyland become an importer or an exporter? Give a reason for your answer. 3.4 Does joining international trade lead to a shortage or surplus of supply? What is the amount? 3.5 Calculate the change in consumer surplus (ACS), change in producer surplus (APS), and change in total surplus (ATS). Who are the winners and who are the losers from this situation?
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