FRE306_ProblemSet1_2011_Answers

FRE306_ProblemSet1_2011_Answers - FRE 306: Problem Set #1:...

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FRE 306: Problem Set #1: Answers Suggested Answers in red. Graphics were specifically requested; they are not included here, although they are described. 1. Think of the world market for coffee, where there is one very large exporter, Brazil, and the rest of the world. Answer the following three questions using excess supply and demand diagrams to illustrate your answers. (15 marks) a. There is a serious frost in Brazil which reduced domestic supplies by 30%. Show what this will do to the world price and to worldwide trade volumes. Using Excess Supply/Demand (ES/ED) diagram, in panel a\ the exporter supply curve shifts left, shifting the Excess Supply curve also to the left. This will result in a higher world market price and a lower trade volume. No further discussion is required. b. There is a large scale increase in supplies in Vietnam due to new plantings and increased productivity so that Vietnam becomes one of the top 10 exporters. Show what this will do to Brazil’s exports. Vietnam is part of the “rest of the world.” An increase in supply there means a rightward shift in the domestic supply curve in the ‘importer’ country. This will result in a leftward
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This note was uploaded on 11/18/2011 for the course FRE 306 taught by Professor Rickbarichello during the Winter '11 term at UBC.

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FRE306_ProblemSet1_2011_Answers - FRE 306: Problem Set #1:...

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