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5. Problems and Applications Q5 The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 8 million, while the number of T-shirts produced declines to 2 million. Use the blue line (circle symbol) to graph the domestic demand for T-shirts in Textilia. Then use the orange line (square symbol) to graph the domestic supply of T-shirts in Textilia. Next, use the black point (plus symbol) to indicate the domestic equilibrium price and quantity before trade. Finally, use the grey line (star symbol) to indicate the world price. Note: Assume the domestic demand and domestic supply curves are linear. 40 40 36 32 Price of T-shirts Domestic Demand 28 24 Domestic Supply 20 16 12 12 8 4 0 0 2 3 4 5 6 7 8 9 10 Quantity of T-shirts (millions) Domestic Equilibrium World Price Complete the following table by calculating the consumer surplus, producer surplus, and total surplus before and after trade. (Hint: Recall that the area of a triangle is x base x height.) Before Trade (Millions of Dollars) After Trade (Millions of Dollars) Consumer Surplus Producer Surplus As a result of opening up to trade, consumer surplus , producer surplus , and total surplus Total Surplus

5. Problems and Applications Q5 The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 8 million, while the number of T-shirts produced declines to 2 million. Use the blue line (circle symbol) to graph the domestic demand for T-shirts in Textilia. Then use the orange line (square symbol) to graph the domestic supply of T-shirts in Textilia. Next, use the black point (plus symbol) to indicate the domestic equilibrium price and quantity before trade. Finally, use the grey line (star symbol) to indicate the world price. Note: Assume the domestic demand and domestic supply curves are linear. 40 40 36 32 Price of T-shirts Domestic Demand 28 24 Domestic Supply 20 16 12 12 8 4 0 0 2 3 4 5 6 7 8 9 10 Quantity of T-shirts (millions) Domestic Equilibrium World Price Complete the following table by calculating the consumer surplus, producer surplus, and total surplus before and after trade. (Hint: Recall that the area of a triangle is x base x height.) Before Trade (Millions of Dollars) After Trade (Millions of Dollars) Consumer Surplus Producer Surplus As a result of opening up to trade, consumer surplus , producer surplus , and total surplus Total Surplus

Principles of Macroeconomics (MindTap Course List)
Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781305971509
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter9: Application: International Trade
Section: Chapter Questions
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5. Problems and Applications Q5 The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 8 million, while the number of T-shirts produced declines to 2 million. Use the blue line (circle symbol) to graph the domestic demand for T-shirts in Textilia. Then use the orange line (square symbol) to graph the domestic supply of T-shirts in Textilia. Next, use the black point (plus symbol) to indicate the domestic equilibrium price and quantity before trade. Finally, use the grey line (star symbol) to indicate the world price. Note: Assume the domestic demand and domestic supply curves are linear. Price of T-shirts 40 36 32 28 24 20 20 16 12 8 4 0 0 1 2 3 45 6 7 Quantity of T-shirts (millions) + 5 8 + 9 10 Domestic Demand Domestic Supply Domestic Equilibrium World Price ? Complete the following table by calculating the consumer surplus, producer surplus, and total surplus before and after trade. (Hint: Recall that the area of a triangle is x base x height.) Before Trade (Millions of Dollars) After Trade (Millions of Dollars) Consumer Surplus Producer Surplus Total Surplus As a result of opening up to trade, consumer surplus ,producer surplus and total surplus
Transcribed Image Text:5. Problems and Applications Q5 The nation of Textilia does not allow imports of clothing. In its equilibrium without trade, a T-shirt costs $24, and the equilibrium quantity is 4 million T-shirts. One day, after reading Adam Smith's The Wealth of Nations while on vacation, the president decides to open the Textilian market to international trade. The market price of a T-shirt falls to the world price of $16. The number of T-shirts consumed in Textilia rises to 8 million, while the number of T-shirts produced declines to 2 million. Use the blue line (circle symbol) to graph the domestic demand for T-shirts in Textilia. Then use the orange line (square symbol) to graph the domestic supply of T-shirts in Textilia. Next, use the black point (plus symbol) to indicate the domestic equilibrium price and quantity before trade. Finally, use the grey line (star symbol) to indicate the world price. Note: Assume the domestic demand and domestic supply curves are linear. Price of T-shirts 40 36 32 28 24 20 20 16 12 8 4 0 0 1 2 3 45 6 7 Quantity of T-shirts (millions) + 5 8 + 9 10 Domestic Demand Domestic Supply Domestic Equilibrium World Price ? Complete the following table by calculating the consumer surplus, producer surplus, and total surplus before and after trade. (Hint: Recall that the area of a triangle is x base x height.) Before Trade (Millions of Dollars) After Trade (Millions of Dollars) Consumer Surplus Producer Surplus Total Surplus As a result of opening up to trade, consumer surplus ,producer surplus and total surplus
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