Home's demand curve for wheat is D = 100 - 20P. Its supply curve is S= 20 + 20P. Derive and graph Home's import demand schedule. What would the price of wheat be in the absence of trade?
Home's
D = 100
- 20P.
Its supply curve is
S= 20 + 20P.
Derive and graph Home's import demand schedule. What would the
2. Now add Foreign, which has a demand curve
*
D=80-20p
and a supply curve = 40 + 20P.
Derive and graph Foreign's export supply curve and find the price of wheat that would prevail in Foreign in the absence of trade.
b. Now allow Foreign and Home to trade with each other, at zero transportation cost.
Find and graph the equilibrium under free trade. What is the world price? What is
the volume of trade?
3. Home imposes a specie tariff of 0.5 on wheat imports.
a. Determine and graph the effects of the tariff on the following: (1) the price of
wheat in each country; (2) the quantity of wheat supplied and demanded in each country; (3) the volume of trade.
b. Determine the effect of the tariff on the welfare of each of the following groups:
(1) Home import-competing producers; (2) Home consumers; (3) the Home
government.
c. Show graphically and calculate the terms of trade gain, the efficiency loss, and the
total effect on welfare of the tariff.
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