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4431ps4 - ECON 4431V International Trade Spring 2005...

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ECON 4431V: International Trade Spring 2005 Problem Set 4 Due May 2nd, Monday NOTE: All assignments must be typed. Graphs and calculations may be handwritten. No late homeworks will be accepted. Exercise 1 (30 points) Instruments of Trade Policy Home’s demand curve for wheat is D = 100 - 20 P . Its supply curve is S = 20+20 P . On the other hand, Foreign has a demand curve D * = 80 - 20 P , and a supply curve S * = 40+20 P . (i) Derive and graph Home’s import demand schedule. What would the price of wheat be in the absence of trade in the Home country? Derive and graph (on the same graph) Foreign’s export supply schedule. Find the proce of wheat that would prevail in Foreign in the absence of trade. (ii) Suppose the two countries are to trade with each other, at zero trans- portation cost. Find and graph the equilibrium under free trade. What is the world equilibrium price? What is the volume of trade? (iii) Now Home country imposes a specific tariff of 0.5 on its import of wheat. Determine and graph the effects of the tariff on the following: (a) the price
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