Demand and supply for South Korean cars, a small nation that cannot influence th

Question

Demand and supply for South Korean cars, a small nation that cannot influence the world market for luxury cars. Table 2 – Demand and Supply for a South Korean luxury car Price of car Quantity Demanded Quantity Supplied $50000 0 50 40000 10 40 30000 20 30 20000 30 20 10000 40 10 0 50 0 (a) Suppose South Korea imports this particular car at a price of $10,000 each, what would be the free trade equilibrium? That is, how many cars will be produced? Consumed? And imported (4 points)? (b) At free trade, calculate the dollar values of South Korean consumer surplus, producer surplus

Explanation / Answer

a) At price 10000, quantity demanded is 40 and quantity supplied is 10. Therefore cars produced is 10, consumed is 40 and imports are 40-10= 30.

b) when quantity supplied is 0 price is 0

Producer surplus = 0.5(10000-0)10= 50000

When quantity demanded is 0 price is 50000

Consumer surplus= 0.5(50000-10000)*40= 800000

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