A) The demand for shoes in Cadbia is given by Qd = 300 - 25P and the supply of shoes is given by Qs = 100 + 25P
If the world price of shoes is $8, will Cadbia import or export shoes? b) The demand for dark chocolates in Cadbia is given by Qd = 300 - 10P and the supply of dark chocolates is given by Qs = 100 + 10 P. If the world price of dark chocolates is $6, will Cadbia import or export chocolates?
a) The domestic price of shoes in Cadbia is the price at which quantity demanded of shoes equals the quantity supplied of shoes. This implies:
300 - 25P = 100 + 25P
50P = 200
P = $4
Because the domestic price of shoes in Cadbia is less than the world price of shoes, Cadbia will export shoes.
b) The domestic price of dark chocolates in Cadbia is the price at which quantity demanded of dark chocolates equals the quantity supplied of dark chocolates. This implies:
300 - 10P = 100 + 10P
20P = 200
P = $10.
Because the domestic price of dark chocolates in Cadbia is more than the world price of dark chocolates, Cadbia will import chocolates.
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