PS2_Spring2009 - International Trade and Finance AEM/ECON...

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International Trade and Finance Professor David R. Lee AEM/ECON 2300 Spring 2009 Problem Set #2 Due Thursday, February 26 , 2009 by 4:30pm. Please print and perform your work in the spaces provided below; attach extra sheets if necessary. Question 1 : The Gains From Trade Assume that country A is under autarky and does not trade with other countries. Its domestic demand and supply schedules for beef are shown below: Price of beef Quantity Demanded Quantity Supplied 140 0 30 120 5 25 100 10 20 80 15 15 60 20 10 40 25 5 20 30 0 a) Plot beef’s supply and demand curves on a graph; derive the function of each curve and calculate the equilibrium price and quantity under autarky. 1 P Q
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b) Calculate the consumer surplus and producer surplus under autarky equilibrium for country A. Now, assume that country B, which produces and consumes beef, and country A described above represent the world beef market. Both counties are LARGE countries. You are given the supply and demand equations for country B: Supply in Country B: P S = 50 + 2Q S Demand in Country B: P D = 170-2Q D c) Calculate the equilibrium price and quantity, and consumer and producer surplus under autarky for country B. (Hint: a graph may be helpful in organizing your answer) d) Determine, using the reasoning given in class, which country would be the importer and which country would be the exporter. Briefly justify your answer (1-2 sentences).
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