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ARE 138 Hw 1

# ARE 138 Hw 1 - Jeff Phang(992268154 ARE 138 HW#1#1 a Home...

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Jeff Phang (992268154) January 22, 2009 ARE 138 HW #1 #1. a) Home Market: Dus = 24,000 – 2000Pus Sus = -12,000 + 3000Pus P max: Dus = 0 = 24,000 – 2000Pus P max = 12 P min: Sus = 0 = -12,000 + 3000Pus P min = 4 P*: Sus = Dus -12,000 + 3000Pus = 24,000 – 2000Pus 5000Pus = 36,000 Pus* = 7.2 Q* = 24,000 – 2000(7.2) = 9600 CS = [(Pmax – P*) X Q*] / 2 CS = [(12-7.2) X (9600)] / 2 = 23,040

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PS = [(P* - Pmin) X Q*] / 2 PS = [(7.2 – 4) X (9600)] / 2 = 15,360 Foreign Market: Df = 60,000 – 10,000 Pf Sf = -15,000 + 5000 Pf Pmax: Df = 0 = 60,000 – 10,000 Pf P max = 6 Pmin: Sf = 0 = -15,000 + 5000 Pf Pmin = 3 P* Sf = Df -15,000 + 5000 Pf = 60,000 – 10,000 Pf 15,000 Pf = 75,000 P* = 5 Q* = 60,000 – 10,000 (5) = 10,000 CS = [(6-5) X 10000)] / 2 = 5,000 PS = [(5 – 3) X 10000] / 2 = 10,000 b) If trade is opened, the Foreign country will export because they have a lower equilibrium price. The range of Pw will be between the US minimum price of 4 and the Foreign maximum price of 6. ??????????????????????????????????????????????? Sx = Sf – Df
[-15,000 + 5000 Pf] - [60,000 – 10,000 Pf} = -75,000 + 15,000 P = Sx Dm = Dus - Sus [24,000 – 2000Pus] - [-12,000 + 3000Pus] = 36,000-5000 P = Dm Sx = Dm -75,000 + 15,000 P =36,000-5000 P Pw = 5.55 Q* = 7500 exported Pmax = 7.2 Pmin = 5 c) P w = 5.55 United States: Dus = 24,000 – 2000(5.55) = 12,900. Up from 9,600 under autarky. Sus = -12,000 + 3000(5.55) = 4,650. Down from 9,600 under autarky. Domestic Welfare w/trade at Pw = 5.55 PS: ½ (Pw- Pmin) X Qsupplied ½ (5.55-4)(4650) = 3603.75, down from 15360 autarky CS: ½ (Pmax – Pw) X Qdemanded ½ (12 – 5.55)(12,900) = 41602.5, up from 23040 autarky Net welfare for the United states = New Welfare – Old Welfare

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= (3603.75+41602.5) - (15360+23040) =
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