Question 4 Suppose Demand is P=lD-3Q and supply is P=Q Mark on two new diagrams what the supply and demand curves leek like (i) in the presence of a...

economic question

Need resolution of question 5

about Question 5 (7 marks) Consider a market described by these demand and supply curves with the production and consumption externalities described in Question 4, and exploring the cases when the world price is 20 or 30. Does free trade always improve welfare? (1 mark) To answer this question do the following welfare calculations (1 mark for each) and see if the trade situations have higher welfare than the autarky situation. (Remember, when free trade is allowed, the world price might be above, or below, the autarky price, which is why we have to consider both cases if we want to generalize about free trade.)

Question 4 Suppose Demand is P=lDfl-3Q andsupply is P=QMark on two new diagrams what the supply anddemand curves leek like(i) in the presence of a negative consumptionexternality with a constant value of 20 for every unitconsumed and seperately(ii) in the presence of a negative productionexternality with a constant value of 20 for every unitconsumed.Question 5 Consider a market described by thesedemand and supply curves with the production andconsumption externalities described in Question 4,and exploring the cases when the world price is 2D or30. Does free trade always improve welfare? Toanswer this question do the following welfarecalculations, and see if the trade situations havehigher welfare than the autarky situation.(Remember, when free trade is allowed, the worldprice might be above, or below, the autarky price,which is why we have to consider both cases if wewant to generalize about free trade.) For theproduction extemality ease calculate welfare in thefollowing cases:(i) no trade with only a production extemality vs(ii) importing with only a production externality and(iii) exporting with only a production externality . TThen consider the consumption externality case bycalculating welfare in the following cases(iv) no trade with only a consumption externalilyUS(v) (v) importing with only a consumptionexternalin and(vi) (vi) exporting with only a consumptionexternality.Your measure of welfare should always be ConsumerSurplus (CS, i.e. area below demand above price} +Producer Surplus (PS. Le. area above supply curveand below price) + any externality (which is negativein both cases}.