2009PS_9_Solutions - AEM 4150 Price Analysis Fall Semester...

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AEM 4150 Price Analysis Fall Semester 2009 Homework Assignment 9 Suggested Solutions Question 1 (a) To calculate the autarky equilibrium (without trade) price for each region: Q s US = Q d US 15 + P US = 80 – 2P US P US * = 21.67 Q US * = 36.67 Q s M = Q d M 15 + 2P M = 100 – P M P M * = 28.33 Q M * = 71.67 (b) United States International Mexico (c) Algebraic solution (i) We can calculate the world price by setting the excess demand equal to the excess supply on the world market. Excess supply (US) ES US = Q s US - Q d US = 15 + P – (80 – 2P) = 3P – 65 Excess demand (Mexico) ED M = Q d M – Q s M = 100 – P – (15 + 2P) = 85 – 3P 1 P w = 25 Q Q P D D ED S S ES 28.33 10 21.67 36.67 71.67 export import P P Q
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ES US = ED M 3P – 65 = 85 – 3P P* = 25 = P US * = P M * (ii) The volume of trade is then ES = ED = 3*25 – 65 = 85 – 3*25 = 10 Now, we assume a transfer cost of $2 per unit of tomatoes. (d)
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This note was uploaded on 08/30/2010 for the course AEM 4150 at Cornell University (Engineering School).

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2009PS_9_Solutions - AEM 4150 Price Analysis Fall Semester...

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