Step-by-step solution file
Consider the small closed economy of Islandia and its market for
Consider the small closed economy of Islandia and its market for bananas. Currently, the domestic demand and supply curves for bananas are given by the following equations:
Domestic Demand: P = 1000 ? (1/5)Q
Domestic Supply: P = 200 + (1/15)Q
Furthermore, you know that the world price of bananas is equal to $300 per unit of bananas. Hint: you will likely find it helpful to draw a sketch or several sketches as you proceed with this problem.
a. If Islandia remains a closed economy, what will be the equilibrium price and quantity in the market for bananas in this economy?
This question was answered on: Feb 21, 2020
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