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2009PS_9_Solutions

# 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 impor t 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) Solving for the equilibrium, i and ii) P US * = P M * - 2 => (X+65)/3 = [(85-X)/3] - 2 => X = 7 volume of trade, and P US * = (7+65)/3 = 24 and P M * = (85-7)/3 = 26 Question 2 The graph for this situation can be found in the notes. Important is to note that the US is a
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2009PS_9_Solutions - AEM 4150 Price Analysis Fall Semester...

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