tradeexample7

tradeexample7 - e. Assume that trade is opened at zero...

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Example 7 Assume that there are two countries in the world, Home and Foreign. Suppose that demand and supply of wheat by our Home country can be characterized by the following two equations: . 10 600 P D = . 10 100 P S + = Suppose that demand and supply of wheat in the Foreign country can be characterized as follows: * * 10 400 P D = * * 10 200 P S + = a. Derive and graph Home’s import demand schedule. b. Solve for the autarky price of wheat at Home. c. Derive and graph Foreign’s export supply schedule. d. Solve for the autarky price of wheat in Foreign.
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Unformatted text preview: e. Assume that trade is opened at zero transportation cost. Find and graph the new equilibrium under free trade. What is the world price w P ? What is the volume of trade? f. Home imposes a specific tariff of 5 on wheat imports. Determine the effects on the price of wheat at Home and in Foreign. g. Show graphically and calculate the terms-of-trade gain, the efficiency loss and the total effect on welfare of the tariff at Home....
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