In the country of Alpha, T-shirts are sold domestically in a competitive market, the equilibrium price is $10, and the equilibrium quantity is 100.
(a) Draw a correctly labeled demand and supply graph for the domestic T-shirt market in Alpha. Plot the numbers on the graph.
(b) Assume the world price of T-shirts is $6, and Alpha engages in international trade.
(i) Will Alpha be an exporter or importer of T-shirts? Explain.
(ii) On your graph in part (a), indicate the domestic quantity demanded of T-shirts at the world price and label it QD.
(iii) On your graph in part (a), indicate the change in the consumer surplus, shaded completely.
(c) Suppose the government of Alpha imposes a tariff of $2 on T-shirts. On your graph in part (a), indicate the new domestic quantity supplied of T-shirts as a result of the tariff and label it QS.
(a) Sorry, I'm not very graph-ic, I prefer entertaining with words!
(b) (i) Alpha will be an importer of T-shirts because the world price of $6 is lower than the domestic equilibrium price of $10. Alpha can get T-shirts cheaper from abroad!
(ii) On the graph, we would indicate the domestic quantity demanded of T-shirts at the world price as QD. I'd give the label a little smiley face to add some style. 😊
(iii) The change in consumer surplus can be represented by shading in the area on the graph that captures the difference between the original equilibrium quantity and the new quantity demanded at the world price. Think of it as a surplus party with new guests!
(c) With the government imposing a tariff of $2 on T-shirts, we would see a decrease in the quantity supplied. Let's label that as QS on the graph. It's like T-shirts doing the limbo - prices going up, quantity going down!
(a) To draw a demand and supply graph for the domestic T-shirt market in Alpha, follow these steps:
1. Draw the vertical y-axis and label it as "Price ($)".
2. Draw the horizontal x-axis and label it as "Quantity (Q)".
3. Mark the equilibrium price of $10 on the y-axis and the equilibrium quantity of 100 on the x-axis. This is the point where the demand and supply curves intersect.
4. Draw a downward-sloping demand curve starting from the top left and moving towards the bottom right of the graph. Label it as "Demand".
5. Draw an upward-sloping supply curve starting from the bottom left and moving towards the top right of the graph. Label it as "Supply".
6. Label the points where the demand and supply curves intersect as "Equilibrium".
(b) (i) To determine whether Alpha will be an exporter or importer of T-shirts, compare the world price of $6 with the domestic equilibrium price of $10.
- If the world price is higher than the domestic equilibrium price, Alpha will be an exporter.
- If the world price is lower than the domestic equilibrium price, Alpha will be an importer.
Since the world price of $6 is lower than the domestic equilibrium price of $10, Alpha will be an importer of T-shirts.
(ii) On the graph in part (a), find the point on the demand curve where the price is $6 (the world price). Mark the corresponding quantity demanded at this price and label it as QD.
(iii) On the graph in part (a), the change in consumer surplus can be represented by shading the area between the demand curve and the price line at $6. This shaded area represents the additional consumer surplus that results from being able to purchase T-shirts at a lower price due to international trade.
(c) To indicate the new domestic quantity supplied of T-shirts as a result of the tariff on the graph in part (a), follow these steps:
1. Find the point on the supply curve where the price is $10 (the equilibrium price without the tariff).
2. Move vertically upwards from this point by the amount of the tariff ($2).
3. Mark the corresponding quantity supplied at this price and label it as QS. This represents the new quantity supplied after the tariff is imposed.
Note: The tariff may affect the equilibrium price and quantity in the domestic market. However, since the exact impact of the tariff on the market variables is not specified in the question, we are assuming the tariff affects the quantity supplied while leaving the equilibrium price unchanged.
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In the country of Alpha, t-shirts are sold domestically in a competitive
market, the equilibrium price is $10, and the equilibrium quantity is 100.
(a) Draw a correctly labeled demand and supply graph for the domestic y-shirt market in Alpha. Plot the numbers on the graph.
(b) Assume the world price of t-shirts is $6, and Alpha engages in international trade.
i. Will Alpha be an exporter or importer of t-shirts? Explain.
ii. On your graph in part (a), indicate the domestic quantity demanded of t-shirts at the world price and label it QD. iii. On your graph in part (a), indicate the change in the consumer surplus, shaded completely.
(c) Suppose the government of Alpha imposes a tariff of $2 on t-shirts. On your graph in part (a), indicate the new domestic quantity supplied of t-shirts as a result of the tariff and label it QS.
it is the answer