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2009Problem Set 9

2009Problem Set 9 - AEM 4150 Price Analysis Fall Semester...

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AEM 4150 Price Analysis Fall Semester 2009 Homework Assignment 9 This assignment is due at the beginning of class on Tuesday 17 November. Total 17 points Question 1 Two countries, Mexico and the United States, produce tomatoes. The United States market has the following supply and demand curves: Q s US = 15 + P Q d US = 80 – 2P Mexico has the following supply and demand curves: Q s M = 15 + 2P Q d M = 100 – P (a) Calculate the autarky equilibrium price and quantity for each region. [2 points] (b) Draw the excess supply curve for the United States and the excess demand curve for Mexico in the international market. Assuming no transfer cost, graph the equilibrium trade solution (use the three graph scheme). [2 points] (c) Solve the problem algebraically. i. What are the equilibrium prices for the US and Mexico (P US *, and P M *)? [2 points] ii. What is the volume of trade (i.e. ED US *, and ED M *). [1 point] Now, assume a transfer cost of $2 per unit of tomatoes. (d) Solve for the equilibrium i. What are the new equilibrium prices for the US and Mexico (P
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