Market Interventions & Monopoly Pricing

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1. Considering a small open economy with demand
Qd= 10-0.5P and Qs= P-2
We have the equilibrium quantity and price at
10-0.5P= P-2
10+2 =P+0.5P
12=1.5P
P= 8
Q= 10-4=6

a) When there are imports from outside, at $4 per bushel, the world price is at $4 which is shown in the following figure.
When the world price is at $4, Qd= 10-0.5(4) = 10-2 = 8
Qs= P-2 = 4-2 = 2
The imported quantity is at 8-2 = 6 units...

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