e rollowing grapn snows the domestic demand and domestic supply curves lemons n

Question

e rollowing grapn snows the domestic demand and domestic supply curves lemons n Kenya. suppose Kenya s government currently does allow the international trade in lemons. Use the black point (plus symbol) to indicate the equilibrium price of a ton of lemons and the equilibrium quantity of lemons in Kenya in the absence of international trade. Then, use the green point (triangle symbol) to shade the area representing consumer surplus in equilibrium. Finally, use the purple point (diamond symbol) to shade the area representing producer surplus in equilibrium Note: Select and drag a fill area point from the palette to the graph. To fill in regions on the graph, merely drop the fill area point on the desired region

Explanation / Answer

WITHOUT FREE TRADE

CS = 1/2(1430-980)(100)

= 22500

PS = 1/2(980-530)(100)

= 22500

SO TS = CS + PS

= 22500 + 22500

= 45000

WITH FREE TRADE

NOW PW = 800

AT PW = 800

QD = 140

Qs = 60

IMPORT = Qd - Qs  

= 140 - 60

= 80

CS = 1/2(1430- 800)(140)

= 44100

PS = 1/2(800- 530)(60)

= 8100

TS = CS + PS

= 44100 + 8100

= 52200

So consumer surplus increases from 22500 to 44100 and producer surplus reduces from 22500 to 8100

and total surplus increases from 45000 to 52200

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