00:01
Hello, in this question we are given a diagram.
00:05
Let's understand the diagram given first.
00:10
Here on the y -axis we have the price of sugar per pound and on the x -axis we have quantity of sugar.
00:18
This is the supply curve that is given to us.
00:21
This downward sloping curve is a demand curve and the price in domestic market is given to us as 15.
00:29
So at 15 we have 100 units of sugar that is being sold.
00:37
Now we are given that the world price is 21 dollars per pound.
00:44
So we draw a line.
00:48
So this is the world price.
00:51
At this price level, this is the quantity demanded in the market and this is the quantity that will be supplied.
01:07
This is the domestic demand and this is supply.
01:19
Now understand that this excess supply will be our exports.
01:30
Now let's solve the question.
01:32
In the first part of the question, we are to tell the consumer surplus.
01:43
The consumer surplus, initially the consumer surplus was this triangle here which is the price that the consumer were willing to pay minus the actual price.
02:03
This will be the consumer surplus.
02:05
Now with trade, the consumer surplus has actually decreased to this level.
02:12
So this will be our shaded area because the new level of price is this.
02:17
So this is our shaded area.
02:19
This is the new consumer.
02:27
This is the blue shaded area in the diagram.
02:34
Now part b of the question, we have to tell how much the costa ricans have to pay.
02:40
So costa ricans, the new price is equal to world price which is 21 dollars...
