International trade
3.1 Suppose the lumber market described in 2.1 was closed to the rest of the world. Now it opens to trade and the world price of lumber is 20. Compute the equilibrium price, quantity supplied by domestic producers, and quantity demanded by domestic consumers.
3.2 Use a demand and supply graph to show how consumer surplus, producer surplus, and total surplus change with international trade.
3.3 Now suppose that Country A is a major exporter of lumber to Australia and in an effort to impose sanctions on Country A, Australia imposes a tariff of t=10 on all lumber imported into Australia. Use a graph of supply and demand to show how the tariff changes consumer, producer and total surplus.
3.4 Calculate the equilibrium price, quantity produced and demanded domestically, tariff revenue, and dead weight loss.
